Ethnicity pay gap reporting

The ethnicity pay gap is the difference between the hourly earnings of White or White British employees and other ethnic groups.

Mandatory ethnicity pay reporting was first proposed in the McGregor-Smith Review in February 2017.  The independent review set out recommendations for employers in the public and private sectors to improve diversity within their organisations. It concluded “Employers must publish their aspirational targets, be transparent about their progress and be accountable for delivering them. The government must also legislate to make larger businesses publish their ethnicity data by salary band to show progress”.

In response to the review, the Government launched its first consultation into ethnicity pay reporting in 2018 – the outcome of which is still pending.

Since then, the pandemic and the Black Lives Matter movement have increased pressure on organisations to address the employment pay disadvantages and unequal treatment of employees from ethnic minority groups. In the absence of legislation and formal guidance from the Government on how to report the ethnicity pay gap, some organisations have chosen to calculate and publish their ethnicity pay gap voluntarily.

Should employers wait for ethnicity pay gap reporting to become mandatory?

There are undoubtedly challenges which employers will face when collecting and analysing ethnicity data in the workplace – data protection, low response rates, technological capacity and concerns about how to ask questions about ethnicity. Whilst formal guidance on what any ethnicity reporting requirements will look like is yet to be released, employers who to start to proactively look at some of these issues now will be in a better position to meet the requirements of ethnicity pay gap reporting and take advantage of the opportunity it presents to address any inequalities in their company.

Employers should also consider the rise of potential discrimination claims as a result of the introduction of ethnicity pay gap reporting, organisations that take action now will not only mitigate these risks but will also have the opportunity to build stronger working relationships with their employees, improve inclusion and diversity and likely see higher employee engagement and loyalty to the organisation.

The CIPD recommends, in the absence of legislation, that employers should aim to voluntarily compile ethnicity pay reports as part of their organisation’s approach to improve inclusion and tackle inequality in the workplace. Furthermore, the CIPD is calling for mandatory reporting, similar to the rules in place for the gender pay gap, to apply to all large employers (companies with over 250 employees) from April 2023.

A study by PWC carried out in September 2020 concluded that the number of organisations calculating their ethnicity pay gap has increased significantly in the past two years. The study of just over 100 employers found:

• 67% of those employers surveyed are now collecting ethnicity data on their staff, compared to 53% in 2018
• 23% of those employers surveyed are now calculating their ethnicity pay gap, up from 5% in 2018
• 40% of those employers that have calculated their ethnicity pay gap have already published it voluntarily.

How can employers prepare for mandatory ethnicity pay gap reporting?

Employers currently collect data on median and mean gender pay gap, median and mean bonus gap, bonus proportions and quartile pay bands. The CIPD recommends that employers also publish these figures for their ethnicity pay gap, as well as the proportion of their total UK workforce from ethnic minorities and the proportion of employees who have disclosed their ethnicity.

In order to do this employers will need to have access to reliable data on the ethnicity of their staff. As a first step, employers should consider how they collect ethnic data. Employees will be more likely to disclose which ethnic group they identify with where employers can clearly demonstrate why they are collecting the data and how it will be used to drive meaningful change in the organisation. Employers should also assure employees of any concerns around confidentiality – ethnicity data is classified as a special category of personal data and as a result, employers must ensure it is kept confidential, stored securely and complies with data protection laws.

For employers who already have ethnicity data for their staff, analysing ethnicity and ethnicity pay gap at this stage voluntarily will allow them to establish if there are any pay disparities between White or White British employees and other ethnic groups and take steps to address any imbalances.

The CIPD has released guidance to help employers measure and report their ethnicity pay gap in the absence of legislation.

Contact our HR Consultants today

If you need specific advice or would like further information, please get in touch with our specialist team by filling out our online enquiry form or by calling 0333 222 0989.