The Government has recently issued voluntary employer guidance outlining a methodological approach to collecting employee ethnicity pay data, to identify disparities between the pay of different ethnic groups. Similar to gender pay gap reporting, the purpose of ethnicity pay gap calculations is to measure the difference between ethnic groups’ hourly pay rates and bonus payments across an organisation. The guidance mirrors the gender pay gap reporting procedures.
As well as providing advice on how to report pay disparities, the guidance also details different strategies that employers can introduce to support an inclusive narrative and create meaningful action within a workforce.
The value of ethnicity pay reporting
Although the guidance does not make ethnicity pay reporting mandatory for employers (unlike gender pay reporting) there is nonetheless value for employers in analysing ethnicity pay information on a voluntary basis. Starting to look at reporting now will not only provide employers with useful information to address workforce inequality, such as identifying unjustifiable pay disparities, but will also help them to prepare for the possibility of mandatory reporting in the future. Most importantly, if disparities are identified, employers can formulate actions plans to tackle the issue by implementing targeted measures.
The guidance includes helpful advice for employers on how to collect and consider ethnicity data, detailed pay calculations, and information on how to analyse and report findings. However, compared to gender pay gap reporting – defined as the difference between the average pay of men and women in an organisation of 250 employees or more – ethnic pay gap reporting is much more complex. In comparison to gender pay gap calculations, ethnic pay gap calculations are not binary and, depending on the diversity of a workplace, can include a large number of ethnic groups. This can present further challenges when deciding how to aggregate certain ethnic groups whilst maintaining statistically reliable results. It is also imperative that individual data is protected and anonymised, which complicates reporting further.
Key takeaways for employers
We have summarised the key takeaways for employers from the guidance.
1. Ensure that statistics and calculations are robust
To ensure ethnic pay gap reporting is rigorous, employers should set minimum sample sizes for each ethnic group. For internal calculations, a minimum of 5-20 employees should be incorporated into the analysis, whereas a minimum of 50 employees should be used for external statistics. The guidance recommends that employers wanting to calculate ethnicity pay gap data follow the statutory guidance on gender pay about who counts as an “employee” for these purposes.
There are specific things to consider when aggregating ethnic groups for the purpose of calculations and reporting. As outlined above, using binary reporting – or only two categories - is not recommended as it masks the detail and nuances of the data, making it harder to identify the causes of any disparity. Therefore, employers should aim to present data on as many different ethnic groups as possible. The Government has issued example guidance regarding aggregated categories, which can be found here. Be aware that this may vary depending on the existing level of diversity in a workforce.
2. Consider how best to improve the evidence base
Employers should encourage employees to disclose their ethnicity data. For example, sending a firmwide email detailing the importance of providing the data, along with information about how the data will be used and stored is one way of encouraging staff to provide their data, therefore increasing the evidence base. Remind staff that a “prefer not to say” answer is just as valuable as a specific answer and is far more useful than no response at all.
Importantly, the push for a substantial evidence base should begin at recruitment. To observe if candidates from certain ethnic groups face specific barriers when applying, an analysis of the data should be made. One example of this could be the proportion of candidates who applied compared to those who were successful from different ethnic groups, relative to the whole candidate pool.
When collecting data, it is important to be mindful of the requirements of the Data Protection Act 2018 and the General Data Protection Regulation (GDPR). A summary of those requirements can be found here.
3. Take care when reporting calculations
The main purpose of implementing the guidance is to help employers understand if an ethnic pay disparity exists within their workforce. As outlined, it is essential that employee data is anonymised.
Whilst using the recommended minimum sample sizes (detailed in point 1) protects anonymity, it is also recommended that a range of statistics is presented and calculated to ensure that individuals cannot be identified. The guidance includes a number of different examples of ethnicity pay figures / measures, and these can be found here. It is imperative that all calculations are presented – not just one overarching measure – which will also help to protect anonymity. The “prefer not to say” statistics should also be published.
4. Maximising impact: considerations when creating an action plan
A thorough ethnicity pay gap report that outlines the methods of calculation, the data underpinning them and interpretations of the cause of any disparity will allow employers to formulate an action plan. The report should outline any future action that the employer intends to take to address the disparities, and this will be the basis for an action plan.
Implementing an action plan is incredibly beneficial. It firstly demonstrates an employer’s commitment to understanding ethnic pay gap disparities within a workforce, whilst also creating a positive overall impact on the culture and ethos of the organisation. Calculations should be produced annually and in a consistent, accessible format to allow comparisons between years and to track progress.
An action plan should outline clear targets that the employer commits to achieving within a particular time frame. Targets should address specific issues and causes of any pay disparity and be measurable and realistic. If any of those targets relate to recruitment, it is recommended that employers consult the Government’s positive action guidance to consider the legalities of recruitment policies which target employing candidates of specific ethnic groups. We provide further information on positive action in our blog Dos and don’ts of positive action.
For more information about what employers can do if they would like to report their ethnicity pay gap data see our blog: Ethnicity pay gap reporting 2022.
You can find further blogs about race equality here:
- Race Equality: key terminology
- Race Equality Reviews
- All year-round Black History: practical steps to achieving diversity
With special thanks to Jessica Harker, a vacation scheme participant, for their help in 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, June 2023