Today, the firm has no staff, no buildings and a healthy profit. Owner Ken Lancaster draws from more than 100 freelancers worldwide and works from his house, his boat or coffee shops.

"You don't have to worry about someone coming late to work, and they hate you, and about all the payroll taxes and health insurance," he says.

One of his Web designers, Bryce Davis, 36, is equally enamored of the unfettered lifestyle. Davis juggles five to 10 clients at a time from his Cincinnati apartment. "I enjoy the change of pace," he says. "It gives you an opportunity to be creative ... without stagnating."

Across the nation, many companies are shifting to a more flexible workforce populated by temporary workers, contractors and freelancers, loosening the bond between businesses and employees. The firms, aiming to become more nimble and cut costs, want to boost or cut staffing to meet fluctuating demand or deploy workers with specialized skills for short-term projects.

The trend is subtly reshaping a workforce in which businesses traditionally employed workers through good times and bad, protecting them with benefits and job security.

"The basic bargain at the center of work used to be, employees gave loyalty and the organization gave security," says Daniel Pink, author of Free Agent Nation. "That bargain is kaput."

For workers, temporary jobs often mean less pay — especially for lower-skilled clerical or manufacturing employees — loss of health insurance and other benefits, and anxiety over where their next paycheck is coming from. Yet it can yield fatter earnings for highly skilled workers such as engineers, software developers and top executives.

The expanding use of contract workers, in fact, is partly fueled by some Americans who see more flexibility, and even security, in such setups. Many young workers who saw their parents lose jobs the past couple of years "are taking on a free-agent mentality," says Steve Armstrong, general manager of U.S. operations for staffing firm Kelly Services. "They're saying, 'It's not the model I want to find myself in.' " Contract or freelance work, he says, can bolster job security by severing workers' ties to the fortunes of one company.

Traditional jobs still reign. However, the portion of contingent workers in the labor force has risen to 10% from 8% five years ago and will increase at least at that pace for the next few years, estimates Barry Asin, president of Staffing Industry Analysts, a research group. Analyst Christopher Dwyer of Aberdeen Group believes such workers already make up 20% of the labor force, a figure that will rise to 25% as early as next year.

There's no official estimate from the government, which tracks only temporary workers employed through staffing agencies. Much of the recent increase in contingent workers is fueled by the fragile recovery. Temporary workers are the first to be laid off during a downturn and first to be hired in an upswing. Many employers must ramp up to meet rising demand but hold off hiring permanent staff until they feel confident in the rebound.

Since September, the number of workers placed by temporary-staffing agencies has risen by 404,000, making up 68% of the 593,000 jobs added by private employers, according to the Bureau of Labor Statistics. Meanwhile, many laid-off workers, often unable to land permanent jobs, have become independent contractors and consultants.

Employers are expanding a decades-old practice of using contingent workers to meet seasonal or cyclical peaks in demand, says Tig Gilliam, CEO of staffing firm Adecco. And many are turning to transient workers with specific expertise to quickly staff and complete projects, such as a product launch, then quickly shedding the workers when the task is complete, says Jonas Prising, North American CEO of staffing firm Manpower.

Partly fueling the trend are the rapidly morphing tastes of consumers in an age when products are sold globally over the Internet. Companies, Prising says, "have to be more agile."

The province of temporary work, in turn, is expanding. Traditionally, staffing firms found jobs for office, clerical and industrial workers. Today, engineers, lawyers, drug researchers and even senior executives hop among assignments. The move toward transient workers shifts "the economic risk (of down time) from the company to workers," says Upjohn Institute economist Susan Houseman.

It also can strain social services. Fran?oise Carré, a social-policy research director at the University of Massachusetts, says government safety nets are not set up to support a large share of workers who lack unemployment benefits and health insurance. For example, workers who lack jobless benefits could be forced to go on food stamps while those who defer health services could incur more serious problems that raise the premiums of others who have insurance, says Randy Albelda, an economist at the University of Massachusetts.

A survey by Freelancers Union of 3,000 of its members found 18% were forced to give up health insurance last year, while 39% cut back coverage.

Meanwhile, the IRS is seeking unpaid taxes from firms that classify workers as contractors when they function as employees, and a growing number of contractors are suing for unpaid benefits. Those efforts likely will keep the contingent workforce from growing even more, says Garry Mathiason, vice chairman of the labor law firm Littler.

Lancaster Advertising began using freelancers to cut costs after the 2001 terrorist attacks pummeled the economy and its business. On Elance, an online freelance marketplace, Ken Lancaster found graphic artists, Web designers and illustrators for as little as one-tenth of the cost of traditional employees.

By 2005, he had jettisoned his $480,000 annual payroll through attrition and unloaded his buildings and their $3,000 monthly mortgage payments. Revenue is down, but profit is up 50%. "You never have to fire anybody, and if they don't live up to expectations, you just don't use them again," he says.

Davis, the Web designer, expects to earn $42,000 this year, less than the $55,000 he earned as pastor and Web designer for a church. But he's confident he can increase his pay to $60,000 to $90,000 over the next three years. "You can stay someplace and wait five years to get a promotion," or you can advance on your own, he says.

'You can't let these people go'

Some companies are shifting to contingent workers to meet oscillating demand.

Lazy Susan, which makes home furnishings, used to have about six employees at its Los Angeles warehouse. Workers handled lots of shipments for trade shows the first three months of the year and in August, but the workload varied other times, depending on deliveries from plants abroad.

"You know you're going to be busy again in January, so you can't let these people go," says Ramsey Davies, the company's managing director. "You end up over-cleaning the warehouse."

After disbanding its warehouse staff and briefly outsourcing the work, the firm last year began hiring temporary workers through Manpower. Now, it has three managers at the warehouse and dials the rest of the staff up or down based on shipments. Labor costs fell about 30%, and new workers can be added quickly, Davies says.

"I don't need to advertise, spend (resources) on doing interviews (or) background checks," he says.

Liz Campos, 24, appreciates the work, but she's in her third temporary warehouse or factory job in three years and would like to be hired full time at Lazy Susan to earn a higher salary and benefits. "I prefer to work at the same company and not work (only) sometimes," she says.

LiveOps, which provides call-center services, has taken the flexible workforce to an extreme. Its more than 20,000 operators nationwide are contractors who work from their homes. The company posts available time slots based on projected call volumes each day. Operators pick their slots and clients in blocks as small as 30 minutes.

Call centers with full-time staffs either "have people that are idle waiting for volume or, if you hit high volumes, you're not able to handle it all," says CEO Maynard Webb. LiveOps "makes sure there's enough, but not too many, workers ready to go."

Charles Viagas, 46, of Coral Springs, Fla., became a LiveOps operator in March after losing his job as a marketing manager at a winemaker late last year. His wife, Gina, recently got a full-time job, so working from home allows Viagas to take care of their two young children. He typically puts in 25 hours a week, including 4 to 7 a.m. slots on weekdays and longer shifts on the weekend.

Because he earns up to $9 an hour, his pay is a fraction of his former six-figure salary. But the job lets him make his own hours and play drums for local bands. "There are other benefits — not working for Corporate America where I have a boss breathing down my neck," he says.

Pharmaceutical giant GlaxoSmithKline illustrates the drawbacks and benefits of a temporary workforce. Several years ago, it had hundreds of temporary sales reps as demand for certain drugs rose and fell. But that created a two-tier workforce, in which supervisors were unsure whether they could include contractors in meetings or training programs.

So the company dropped the contractors and cut its staff during the past 18 months as patents expired. Now, with new drugs launching, Glaxo wants to beef up its sales force but is hesitant to hire permanent workers because of changes affecting the health care industry. For example, the consolidation of physicians into group practices could require different sales skills. So Glaxo is creating a new type of worker, hiring up to several hundred sales reps who will be on staff and get most benefits but who will be limited to a three-year stint.

A leaner financial picture

Many temporary workers struggle. Leonard Lamkin, 58, started doing independent contract work two years ago, after he left his position as head of a Chicago patient-safety advocacy group to care for his ill mother. While Lamkin has juggled two or three assignments at a time — including writing grants for food pantries and training a nursing home's staff — he's also faced long dry spells and is earning less than half his former salary. He had to take $6,000 from his savings to pay bills, dropped his health club membership and can't get health insurance because of a pre-existing condition.

He likes the flexible hours that let him take his mother to the doctor and see his children. And, he says, "I can turn down projects" that don't interest him. But he would prefer a full-time job.

Others favor the itinerant life. Many firms laid off executives in the downturn and have not replaced them, creating opportunities for specialists, says Laurie Young, co-principal of Flexible Resources, which places executives in short-term posts.

Three years ago, Sharon Slade, 52, of Fairfield, Conn., left her marketing job at St. Regis Hotels to take a series of interim senior executive positions. She has redesigned the packaging of a global health care company's product and defined the in-store experience for a luxury fashion retailer, among other projects. Initially, she says, the pay equaled her former salary, even with two-month breaks between gigs. Work has been more sporadic lately.

The jobs have allowed her to work from home more, so she can be with her three children. She also has enjoyed the variety.

"I've worked on things that stretched me," she says. And "You're not caught up in all that stuff, the company culture ... the politics."