Government guidance on ethnicity pay gap reporting

Recent guidance has been published by the Department of Business and Trade, to assist employers who wish to analyse and report on their ethnicity pay data.

The production of this guidance follows a report written by the government in March 2022, ‘Inclusive Britain’, in which they responded to an investigation into inequality by the Commission on Race and Ethnic Disparities. The government recognised existing injustices faced by those of ethnic minority, and committed to addressing these problems, stating ‘we are determined to do all we can to root out racism, to tackle discrimination and build a fairer Britain’. The recent guidance builds on recommendations within ‘Inclusive Britain’, as part of the pledge to properly address inequality.

Since 2017, it has been a statutory requirement for employers with over 250 employees to measure and report gender pay gaps. The government has not made reporting on ethnicity pay gaps a legal requirement in the same way, but the aim of this guidance is to develop a consistent approach amongst participating employers, who choose to produce such data.

Analysing this information is a way for employers to investigate and identify any disparities in average pay between ethnic groups in their workforce, but it does bring some challenges.

Guidance

One of the first considerations for employers when it comes to considering ethnicity pay data is the size of the ethnic groups that are to be investigated. This will, naturally, differ across companies of different sizes, but the guidance recommends that each ethnic group is made up of at least 50 employees. The guidance states that this is so the results are statistically robust, and further, this will help avoid the identification of specific employees.

Similarly, some areas of the UK are more ethnically diverse than others, which can make it difficult for employers in parts of the country with small ethnic minority populations to produce meaningful data.

Data protection is an important factor to consider when it comes to this sort of widespread analysis across a workforce. In smaller companies/ firms, in which it is not possible to have 50 employees within each ethnic group, the guidance suggests that groups could be aggregated together.

Another problem identified with ethnicity pay reporting is that employers tend to have poor or incomplete data on ethnicity, compared to data on the gender make up of their workforce.

The guidance does recognise that there could be legitimate reasons for variations in pay across different ethnic groups. For example, average pay might be found to be lower in a particular ethnic group, but for the reason that this group disproportionately applies for more junior positions in a company, which in turn, are lower paid.

However, employers might instead identify that there are barriers in place to career progression for individuals in this ethnic group, and that this is something to address moving forward. This is one reason why employers should ensure they carefully scrutinise any results, to recognise why any such disparity may have arisen.

If employers do find that there are not legitimate reasons for any ethnicity pay gaps identified across their workforce, the guidance notes the important of putting a strong action plan in place to address these issues. This plan should set out clear achievable targets, and include a timescale in which the employer expects for action to be put in place.

If employers do decide to investigate and report their ethnicity pay data, they are not required to actually report it. However, if results are reported, employers should take care to ensure that they have explained their calculations in full. Explanation should be given as to why, if any, pay disparity exists, and what action is being taken to improve it. Also, such a report could potentially be disclosable in responding to any claim of race discrimination. This could lead to claimants using the data in the report to cast doubt the organisation’s employment practices and seeking to persuade a tribunal draw adverse inferences in a finely balanced discrimination claim.

An alternative view is that without such data, large employers may misdirect their efforts in relation to equal opportunities in the workplace.

While ethnicity pay gap reporting remains voluntary, the government has previously considered making it mandatory. It also remains of interest to lobby groups and unions. Employers should consider whether it is worth capturing this data now to get ahead of the game.