The Equality Act 2010 legally protects us from discrimination – not only in the workplace but also in wider society. However, the Office of National Statistics’ 2019 annual review found that “most of the minority ethnic groups analysed continue to earn less than White British employees in 2019”. Many still do not know the scale of the pay gap.
The Government ran a consultation in October 2018, seeking employers’ views on ethnicity pay gap reporting, what should be reported and who should be expected to report. Following this, a petition received over 130,000 signatures in favour of mandatory ethnicity pay gap reporting. More recently, the House of Commons Women and Equalities Committee urged the Government to make ethnicity pay gap reporting mandatory as a first step to addressing pay disparities between employees from different ethnic backgrounds.
In its policy paper published in March this year, the Government stated it would not be making ethnicity pay gap reporting mandatory “at this stage”, to avoid burdening workplaces during their post-pandemic recovery. Despite stating that such reporting would be an effective tool to assist employers in making a fair workplace, the Government has stated it may not be suitable for all workplaces.
Pay gap reporting: an overview
In 2017, the Government introduced mandatory gender pay gap reporting for all companies with over 250 employees. This has been said to be a basic indicator of inequalities in the workplace at all stages of employment, but also a facilitator of conversation for senior members of a company.
A pay gap report measures the difference in hourly pay between different groups. This is different to an equal pay audit, which looks at the difference in pay between people with different characteristics at the same job, pay gap reporting looks at a wider picture across the workforce.
The Government’s commitments
The Government is committed to supporting fair pay, and employers that do want to report on their ethnicity pay gap. They acknowledge the difficulty that comes with this kind of reporting, including confidentiality and the difficulty in obtaining correct data. Where gender pay gap reporting only uses two categories, for ethnicity there would need to be many specific categories instead of a few broad groups, which is resource-intensive for employers. The data is not binary which makes collecting more challenging. Finally, any solution needs to account for the different demographic in different regions of the country, as some areas have very small ethnic minority populations.
The Department for Business, Energy and Industrial Strategy (BEIS) is due to release guidance for companies this summer, which should provide specific advice to deal with the issues mentioned above, however nothing has been published at present. Employers should look out for this guidance, which will assist them more specifically in implementing ethnicity pay gap reporting within their workplace. The guidance will include case studies of companies that already report on their ethnicity pay gaps and will provide employers with the tools to understand and tackle pay gaps and to build trust with their employees.
What can employers do if they would like to report?
Many employers are already reporting their gaps, as most candidates, employees, investors and regulators want transparency. Not only does this allow employers to gain the trust of their employees by showing they promote a fair workplace, but employees also benefit from an indirect assurance that they are not being unfairly discriminated against. Reporting on the ethnicity pay gap is a way of demonstrating an employer’s commitment to anti-racism, and employers that don’t take diversity and inclusion seriously may find themselves losing out on talent, where there is an increasing interest in what action employers are taking on this front.
The Government recommends that employers produce a diagnosis and action plan to address any disparities in their data. Following the publication of the BEIS guidance, the Government believes employers will be equipped with a “trustworthy” and “consistent” standard for reporting, which will in turn enable them to take meaningful action in identifying and tackling the causes of disparate pay.
In the absence of any specific guidance or legislation, the CIPD has issued voluntary guidance. These are based on six main principles:
- Align ethnicity pay reporting with gender pay reporting, but recognise the differences.
- Remember ethnicity representation is as important as, and strongly linked to, ethnicity pay gaps.
- Recognise the value of simplicity and clarity.
- Focus on action.
- Start and improve.
- Combine comparability in data with tailoring of analysis and actions.
They recommend the following approach to reporting and acting on ethnicity pay:
- Set the aims and scope and form the lead team.
- Gather and clean the relevant data.
- Calculate the statistics.
- Analyse causation and draft narrative.
- Develop an action plan.
- Communicate, implement, monitor and review.
It is important that the collection of data complies with Data Protection legislation and employers must ensure that they identify the lawful basis for processing data relating to an employee’s ethnicity. Information relating to an individual’s racial or ethnic origin will be a special category of personal data under UK data protection law, and employers therefore need to take care that they ensure the anonymity of their staff. In a business where there are few ethnic minority employees, it might be possible to infer from pay gay information who they employees are, which could present significant issues.
There are other challenges associated with collecting ethnicity data that employers should be mindful of. These include the fact that employees may not identify with any of the categories (and it is therefore important to give careful thought as to the categories that will be used) or employees may not simply want to share such information. This would inevitably distort the data and would impact its usefulness, if it does not in fact take into account the full spectrum of ethnicities.
Employers can increase their ethnicity disclosure and coverage by collecting the data at continuous stages of employment, having continuous communication campaigns, providing different opportunities for staff to give information, clearly explaining how the data will and will not be used, and using staff networks to act as champions. Employers should also always provide a “prefer not to say” option.
Employers should also consider taking an intersectional approach to reporting between areas such as disability, sex and sexual orientation, so that they have a fuller understanding of their workforce.
You can find other posts we have written on promoting diversity in the workplace at the following links:
- Ethnicity pay-gap reporting: a step in the right direction?
- Embracing ESG in the workplace
- Diversity and inclusion in the financial sector
- A reminder of indirect discrimination and how to avoid it
With many thanks to Simran Patel, a current paralegal in the Employment team, for their help with producing this blog.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, August 2022