Adapted from Microsoft Small Business Kit by Joanna L. Krotz, John Pierce, and Ben Ryan

Managers have a lot of trouble figuring out when to add staff. If you hire in anticipation of work, you could get stung if a deal falls through. But if you wait until business booms, you've lost opportunities. It's a challenge. What's the solution?

The smart response to uncertain demand is to hedge your hiring bets. That is, hire contingent or free agent workers to build your department incrementally.

Contingent workers are temporary or contract employees, freelancers, self-employed experts, and independent consultants. They can work on site or from remote locations. You can outsource an entire project to consultants who then hire and manage their own staff, or you can maintain hands-on supervision of each player.

You can also contract with a staffing agency to recruit, evaluate, and hire workers that you need, or you can canvas associates and associations to find workers on your own. There are dozens of options. With specialized and short-term help, your staff becomes infinitely flexible. It can expand or shrink along with your work.

Deep, wide pool of talent

The pool of free agent talent has also deepened and widened over the past several years. Numbers of college-educated, technical, and managerial contingent workers have been on the rise, while those of industrial and clerical contingent workers have been declining, according to the U.S. Bureau of Labor Statistics.

For better or worse, managers increasingly view employees as a variable cost rather than a fixed one. Companies today gain and shed workers along with business prospects. That shiftis further fueled by the options offered by contract workers, some of whom don't want permanent positions.

You can now find contract workers in every field at every level, including lawyers, mail clerks, dentists, CFOs, nurses, IT gurus, marketing specialists, data processors, physical therapists, teachers, manufacturing workers, sales help, call center reps — you name it.

But contingent workers and consultants require different handling from permanent staff. These workers represent a new breed of management tradeoffs and challenges. Here's what you need to know to manage and get the most out of free agents and contingent staff:

• Explain the mission and job   Set up a formal orientation. Tell the incoming worker why you're hiring them, what your project or department is all about, and what kind of training or learning he or she can gain while on the job.
• Introduce contingent staff to full-time staff   Some companies don't bother to introduce contingent or temporary workers to their full-time staff. A quick department-wide e-mail message introducing the new worker and their role can help them make the transition to your team. Letting your full-time staff know the reasons for hiring temporary help can avoid potential future misunderstandings.
• Define your needs   If a permanent position is an option down the line, say so. If this is just a one-off contract with no possibility of a permanent position, make that clear. The more honest you are with contingent staff, the better the quality of the work you'll get. Make your expectations for the contract clear.
• Review policies, legalities, and benefits before hiring   The Internal Revenue Service (IRS) and other government agencies can assess costly fines and penalties if they determine that you've avoided paying employment taxes by hiring "temporary" workers. There are also other federal and state compliance issues to consider when hiring contingent staff. Make sure to have a lawyer review your policies and contracts.
• Understand who works for whom   When you rely on a staffing agency, remember that they are your contingent staff's employer and they take care of all employer-related responsibilities, including payroll taxes, wages, health insurance, and the rest. This is known as a co-employment relationship. If there's a performance or management issue, you need to call the staffing company and discuss it with them before addressing the worker — he or she is the agency's direct employee, not yours.
• Protect yourself   Depending on the work and the worker, you might want to ask a contract employee to sign a release or a confidentiality agreement before they begin work. Ask the worker to sign a simple document that says he or she agrees not to use any competitive information learned on the job for a period of one year after leaving the company. Experts say this kind of agreement has good legal standing. Make sure to have a lawyer review your policies.

Contingent or free agent staff offer managers an excellent way to fill a wide range of positions with skilled and informed workers. If you feel that temporary employees can solve your staffing needs, then it benefits you to understand how to get the most out of your investment.

About the authors   Adapted from Microsoft Small Business Kit by Joanna L. Krotz, John Pierce, and Ben Ryan. Visit Microsoft Learning to learn more about this book and its authors.