Hi! Thanks for your question. While Facebook can be distracting for some workers, especially if they're playing games like Farmville instead of working, a couple of studies have shown that allowing your employees to use Facebook and other social networking sites, such as Twitter, at work can actually boost productivity.
One of the reasons it can help your employees is that it gives them a chance to take a breather from work, like we describe in a previous blog post about how a little procastination can help go a long way. Longer days and fewer breaks can take a toll on your employees, so it's helpful to step back from those spreadsheets for a bit.
Secondly, if you're in a creative field social networking sites can be helpful! Not only do we have a Facebook Fan Page for ChooseWhat, but we also encourage our employees to ask questions on their own personal accounts. I get so many ideas and suggestions from Facebook Friends and Twitter Followers! It also helps to create a virtual water cooler so I can see what other people are interested in order to write an informative blog that appeals to the masses.
Thirdly, the study most people often cite for decreased productivity due to Facebook is a 2009 study that says that the social networking site costs employers 1.5 percent in productivity. Is completely banning your entire office from Facebook and potentially making them feel punished worth 1.5 percent? I'm not so sure, but for some people it might be.
I would suggest taking a look at your employees individually. If there is someone abusing personal Internet use while at work, pull him or her aside and talk to him privately instead of completely banning it.