How Should I Charge Paid and Unpaid Labor Hours?

I'm developing a process to charge labour costs to internal projects, hopefully supporting our CMMI level 3 objective and specifically Project Monitoring and Control.

For CMMI, I understand that all hours must be captured even unpaid.

My question is: what hourly rate is charged/estimated for the unpaid hours to the internal project. In two large (CMMI) companies I have asked, they render the unpaid hours to the internal Project Manager, at a rate of zero; in essence capturing it as an important metric. But this requires the employee to separately enter the distribution of his/her unpaid hours by project on their timesheet.

My accounting colleagues insist that all hours must have an internal $ charge and this would eliminate the need for the employee to enter a separate "unpaid" line on his timesheet. But I'm concerned that this approach will cause Project Managers to discourage employees entering any unpaid hours as it will eat into their Project budgets without any personal gain to the employee.

There is nothing in the CMMI that I am aware of that requires anyone to track time. What is required is that the organization uses Measurement and Analysis (MA) to examine its information needs and measurement objectives to determine what base measures to collect and what derived measures to compute to develop measurement indicators that the decision makers can use to make decisions. Now when you crank through the MA process, the organization usually realizes that it has to collect some kind of effort information in order to make a decision.

Part of the process for determining the measurement indicator is specifying the units on the indicator: hours, dollars, number of defects, etc. So my first question back to you is why do you need an hourly rate for tracking your ML 3 efforts? Is just tracking hours spent insufficient? Many times the hourly rate is competition sensitive, so project managers do not have access to that information, but they do have access to effort. Also, how does using an hourly rate help with estimating new process improvement efforts and projects? I submit to you that what you really should be tracking is effort and not dollars. Then you don’t have to be concerned about unpaid vs. paid labor costs, just time spent on a task. When the data are all rolled up, then you could apply an average labor rate to convert hours to $ if you are interested in cost numbers.

If you don’t track unpaid hours, then you really are not getting the true picture of how much effort it took to do a job. For example, if the organization states that an employee will only get paid for working a 40 hour week regardless of how much overtime, no one tracks how much time is spent in excess of 40 hours. Therefore, it appears that it only takes 40 hours /week to produce what is actually may be taking 60+ hours/week to produce. Then management may dump more work on top of the employee because it looks like they can handle the additional burden. So it becomes difficult to justify adding staff because you do not have a true picture of how much it costs. And you really don’t have any accurate estimates for the project.