Ethnicity Pay Gap reporting

Is there an ethnicity pay gap?

According to a study by the Office of National Statistics (ONS) on 2019 data, the ethnicity pay gap between white and ethnic minority employees had narrowed to its smallest level since 2012 in England and Wales. However, the study also confirmed that in 2019 most minority ethnic groups analysed in the study earned less than white British employees and highlighted that, regionally, there were large differences in the ethnicity pay gap – in London, the gap is 23.8%, while in Wales is it just 1.4%. The ONS has not released a comparative study on ethnicity pay data since 2019.

The question is a complex one - an ethnicity pay gap is not simply a factor of ethnicity but also of other demographic factors such as gender, age and location. Interestingly, the ethnicity pay gap is larger for men than women, though for most ethnic groups, men continue to earn more than women. This means that gender pay reporting remains a key exercise for employers in addition to ethnicity pay reporting.

Why does ethnicity pay gap reporting matter?

With the Black Lives Matter movement and increased transparency around gender and pay, ethnicity pay gap reporting cannot simply be viewed as a tick-box exercise. It is about employers demonstrating a genuine commitment to equality, diversity and inclusion for the benefit of current and future employees alike, and not just for their clients or investors.

Tangible action on all fronts of ESG will need to be demonstrated, reflecting the mood of society and addressing issues for the common good. Equally, increased social conscience among the younger workforce, especially among Gen Z, means that organisations that are committed to transparency and improving equality are more likely to attract candidates in a competitive job market.

Ethnicity pay gap reporting: what are the challenges for employers?

Ethnicity pay gap reporting is not without its challenges. The most obvious is that many businesses do not hold ethnicity data on their employees. There is no legal obligation for employees to divulge which ethnic group they identify with and requests for ethnicity data can achieve poor response rates if they are not managed very carefully.

You will need to put in the groundwork to build a workplace culture that encourages employees to disclose this information, and foster a culture that will enable your business to take the positive step of analysing and publishing ethnicity pay data.

Another challenge is the fact that individuals may not identify with any of your proposed categories of ethnic groups. Determining what those classifications should be and how to compare pay across different ethnic categorisations is not necessarily straightforward and should be considered carefully.

As an employer, you must also ensure that the anonymity of your employees is maintained when collecting ethnic data – this raises the question of the potential ability to identify individuals where the ethnic category is particularly small within an organisation.

The government’s consultation proposed that only employers of 250 or more employees should have to report, in line with the gender pay gap reporting obligations. Whether ethnicity pay reporting becomes mandatory or remains voluntary, figures reported for smaller employers may prove to be less informative because of limited data.

Has traction on ethnicity pay reporting stalled now reporting will remain voluntary?

Despite a number of organisations lobbying for mandatory ethnicity pay reporting in line with current gender pay gap reporting obligations, and in response to the Women and Equalities Committee report on the subject in early 2022, the government announced last year that it does not plan to legislate to make ethnicity pay gap reporting mandatory. Whilst the government will continue to encourage employers to report on a voluntary basis, it reaffirmed the conclusion of an independent report previously published in March 2021 by the Commission on Race and Ethnic Disparities that the pay gap reporting as it is currently devised for gender cannot be applied to ethnicity.

Whilst disappointing for those lobbying for mandatory ethnicity pay gap reporting, it is likely that more and more Diversity, Equality & Inclusion committees will see this as the right direction of travel.

That said, the government made it clear that it fully supports companies and organisations that want to publish ethnicity data, and stated its intention to publish guidance that should help employers with some of the challenges associated with ethnicity pay reporting. One key recommendation of the Commission’s report was that employers should produce a diagnosis and action plan, setting out the reasons for and steps to address the disparities. We are told that the forthcoming guidance to be published will support employers to achieve this.

The end goal of ethnicity pay gap reporting, whether it is mandatory or voluntary, is to encourage greater employer transparency, accountability and action in relation to the ethnic diversity of the workplace. Obviously, action in this area doesn’t stop at publishing ethnicity pay gap figures – rather, taking appropriate steps based on what the data says about the organisation’s ethnic diversity and pay is the crucial end goal. As with the conversation around the gender pay gap, opening up a dialogue with employees on ethnicity pay is likely to improve employee engagement and help demonstrate an employer’s commitment to improving diversity and inclusion.

For employers who were already moving towards greater transparency around gender pay and ethnicity pay, the government’s announcement is unlikely to change the approach of such organisations. However, as noted above there can be real benefits for employers who grasp the nettle and start making strides towards transparency in ethnicity pay.

Ongoing government review

The government has encouraged employers to take a voluntary approach to ethnicity pay gap reporting to date. However, the government had previously indicated it was likely that mandatory reporting would need to be introduced to enable employers to identify the barriers to progression in the workplace by ethnic minorities.

In 2019, the UK government ran a consultation¹ on ethnicity pay reporting by employers. Subsequently, over 130,000 people signed a petition submitted in June 2019 to introduce mandatory ethnicity pay gap reporting in the UK, and the government confirmed that Parliament would consider this petition for debate. The response to this petition was given on the 30 July 2020. The Commission on Race and Ethnic Disparities produced an independent report in March 2021 and thereafter the Women and Equalities Committee then published its own report on 8 February 2022 that called on the Government to introduce mandatory ethnicity pay gap reporting. The Government response on 7 April 2022 confirmed that they were not going to introduce mandatory ethnicity pay gap reporting in line with the Commission’s conclusion that “ethnicity pay gaps should continue to be reported on a voluntary basis and the government should provide guidance to employers who chose to do so”.

The government response to the Women and Equalities Committee report cited concerns that the pay gap reporting as it is currently devised for gender cannot be applied to ethnicity, highlighting that there are significant statistical and data issues that would arise as a result of substituting a binary protected characteristic (male or female) with a characteristic that has multiple categories. It made clear that it does not want to impose new reporting burdens on business and will not therefore be legislating for mandatory reporting.

That said, the government made clear that it supports companies and organisations that want to publish ethnicity data and stated its intention to produce guidance, which should help employers navigate the challenges associated with ethnicity pay reporting. A key recommendation of the Commission’s report and of the Committee was that employers should produce a diagnosis and action plan, setting out the reasons for and steps to address the disparities. The guidance will support employers to achieve this.

We can help with your ethnicity and gender pay reporting requirements – get in touch with our expert team today.