This is the second in a three-part series on how small employers can focus on work-life programs to recruit and retain the best employees. Read part one here.

WHEN DAVID A. FIELDS was setting up his tiny Ridgefield, Conn., management-consulting firm in 2005, he needed a way to lure talented employees used to working for big-name clients. He couldn't offer expensive health insurance, corporate gym memberships or fancy office space.

But he could offer one valuable benefit to prospective employees: the ability to work remotely.

Thanks to technology, Fields runs his home-based business, Ascendant Consulting, almost virtually. Connected by web applications, his six employees are scattered in their homes throughout Connecticut and one, his administrative assistant, is in New Jersey. Not only has the arrangement saved him significant overhead costs, but it's allowed him to recruit and retain, in his opinion, the best employees for the job.

"I have found a fabulous talent pool among professionals — more females than males, but both — who have all the corporate blue-chip training and background, but left blue-chip land because they wanted to spend more time with their families," Fields says. Most of his employees are raising young children; one is taking care of an elderly parent with Alzheimer's. "You just can't do that and be in the office all the time," he says.

Indeed, a growing number of small businesses say allowing employees the flexibility to work from home — especially when life circumstances demand it — gives them an edge over larger rivals that maintain more traditional set-ups. Many say such alternative work arrangements wouldn't be possible without a host of new technology products that allow them to connect electronically, work off the same version of documents, and have brainstorming sessions in chat rooms rather than physical conference rooms.

"To us, it's a competitive advantage," says Rohyt Belani, who co-founded his information security company, Intrepidus Group, in January 2007 with the idea that employees could work from home as often as they liked or needed. While his company has a small office in New York, all seven employees in the New York or Washington, D.C., areas work mostly from home when not traveling to meet with clients.

To make it work, Belani has set up a channel on Skype, the free voice-over-Internet service, that allows employees to talk with one another almost as if they are in the same physical office. "It's like sitting in a room and screaming, 'can anyone answer this'," he says of the Skype chat-room. He also relies on FolderShare, a free Microsoft service, to synchronize files on staffers' respective laptops, which makes it seem like they are all sharing the same hard drive. The company maintains an internal 'wiki' site, so employees who learn a new way to handle a problem can post remedies for the rest to see.

To ensure communication, Belani makes sure everyone participates in weekly conference calls, and he takes his New York employees out to lunch once a week, and his D.C. employees once a month. "Given our low overhead, a lunch once a week is no big deal," he says. "It builds camaraderie." Most of his employees were drawn to Intrepidus because they have young families and wanted to work from home when not on the road, he says.

For Doreen Overstreet, who works as a senior account executive with marketing firm Costa DeVault in Winter Park, Fla., the ability to telecommute has meant more time with her two-year-old son, and lower child-care expenses. She works twice a week from home, a schedule that was figured out when she announced her pregnancy to her bosses.

"I was kind of freaking out," she recalls, not knowing how she'd be able to juggle parenthood and working. The solution was for her to work Tuesdays and Fridays from home, connected to her work computer via GoToMyPC.com, Citrix's web-based service. The company pays for her equipment, Internet and phone use. Overstreet schedules client meetings during her time at the office, but often takes part on conference calls and talks to clients and media from home.

Overstreet, who's worked for Costa DeVault for six years, says the arrangement has made her a more loyal employee. "To have a small company who will do that for me - that means more to me than anything else, benefits or stock options," she says.

The firm's owner, Linda Costa, has allowed work-at-home set-ups for the past 15 years, especially for new parents, and says technology has revolutionized the process. She recommends alternative work arrangements for any business that does most of its work via computer. "The residual for me has been a very loyal, hard-working dedicated team who appreciates the flexibility and makes up for it in really working hard," she says.

Fields, of Ascendant Consulting, says one of the few drawbacks is the lack of interaction. "There are times when we might be able to accomplish more if we were sitting in one room," says Fields, whose employees stay connected via GoToMeeting.com, Citrix's online meeting service, and RingCentral, an Internet phone system. "But we've gained so much in productivity that it's worth it."

Other recent Work & Life columns:

• Work & Life: Flextime for Employees
• Work & Life: Caring for Aging Parents

"Work & Life," a weekly column written by Colleen DeBaise for smSmallBiz.com, advises entrepreneurs on how to better balance their lives. Write to her at cdebaise@smartmoney.com.