How can I monitor employees computer activity?

You should also ask the question "Why?"

If you want to block inappropriate sites in the workplace = a web filter.

If you want to prioritise bandwidth for commercial purposes = traffic shaping.

If you want to monitor employee use of work resources = internet monitoring.

Enterprise applications certainly exist which can do all the above (WebSense springs to mind, although that is not 'freeware') but be aware that your manager may need to have an Internet Usage Policy in place, perhaps as part of a wider Employee Handbook distributed to all staff, which sets out which of the above are in use and what the penalties are for inappropriate online behaviour.

In the event of using such activity in a warning or dismissal, the employee would have to have been aware that what they were doing was a violation of clearly defined rules to which they had previously agreed (I can only speak from a UK perspective but I imagine EU law would be similar).

I am aware that the above is deviating slightly from a 'sysadmin answer' but it should certainly be considered when installing any new network monitoring.

If you are in the UK, before you implement any form of monitoring, have a read of The laws relating to monitoring your employees - published by Out-law.com, a UK law firm. More info about employment law (written in easy-to-follow, digestible chunks) is here: http://www.out-law.com/page-353

Employees have a lot of rights!

If your employer feels that employees running a short-lived stress-reducing game such as Solitaire is a problem, seek new employment.

People are more efficient if they are allowed to relax for a short time with a simple game such as this. People are vastly less efficient if they are treated like slaves or machines. Employers that fail to realize this will be problematic to work for in many ways.

You should also consider how being involved in an unethical situation such as this will impact you personally. Either you will experience feelings of guilt, or you will start to feel it is OK to monitor your family in this way.

If you think it is OK to monitor employees' personal email usage from work, ask whether it is OK to ask them to do work while at home.

If freeware: Some editions of Vista/Win7 include a built-in monitor, that works ok.

But if you ask me: Do not monitor, I would rather block.

Several schools in Norway are using 3ami to do this. From the 3ami site:

3ami MAS is a complete computer activity monitoring package. Once installed across a corporate network, MAS will track changes to hardware and software throughout your organisation. MAS captures and securely stores records of all user activity – not just on the internet but in every application including email, word processing, spreadsheet applications, instant messaging and online.

This suite is not freeware, but I have heard several people being very satisfied with it.

Make sure the laws in your country allow you to monitor the employees this way though.

Start firing the non-productive employees?

EDIT: Settle down guys. I didn't mean this in a "vindictive pointy-haired manager" way. More of a "drop the dead-wood" way. By non-productive I meant those who come to work and browse serverfault ALL DAY.

I believe you shouldn't monitor your employees activity. Not doing so, manages to keep a healthy work-place environment, and happier employees.

If you suspect that some of your employees are not being productive due to time waste in sites like youtube, or whatnot, you should just make surprise visits at their desk to check out what they're doing.

You can track employee computer usage with www.rescuetime.com service. It is not free, though, and does not allow you to monitor email messages.

You can use the personal version for free. I have used it for over a year and it has never caused any trouble.

I agree with Roger, monitoring only introduces problems to the business environment, best thing to do is remove distractions and issues. For the likes of Limewire and P2P a decent Layer2 firewall can block all that traffic, and for Solitaire just remove it from their systems. If they think of a new way of procrastinating, then find a way to block it.

I'm with fourstar... I've tried to police users in the past, but it's really a full time job. You're much better off establishing an Acceptable Use Policy/Internet Usage Policy and having all the employees signing acknowledging they know what it is. Block P2P apps, inappropriate sites, and the like. If you're using active directory, block solitaire via a Software Restriction Group Policy.

You'll save you and your boss so much headache this way.