How to prepare for ethnicity wage gap reporting

With the introduction of mandatory pay data publishing increasingly likely, Charlotte Moorhouse outlines the key steps businesses should be taking now

Following the Black Lives Matter movement, many organisations have started to reconsider their diversity and inclusion (D&I) policies. One such company is BP UK, which announced in August that its new D&I plan would include external annual reporting of its UK ethnicity pay gap from early ‎‎2022 “at the latest” using the previous year’s data. Peter Mather, BP’s UK head of country, and Simon Ashley, BP UK’s HR director, said “the intent is to publish regardless of any UK ‎government requirement to do so”.

What is the law? 

Unlike gender pay gap reporting, which is mandatory for organisations with 250 or more employees, there is no obligation on employers to report on their ethnicity pay gap. 

However, on 24 June 2020 the government responded to a parliamentary petition to introduce mandatory ethnicity pay gap reporting, stating that it is currently analysing detailed responses it received from its consultation on ethnicity pay reporting, which ran from October 2018 to January 2019. 

The government added that “building a fairer economy means ensuring the UK’s organisations reflect the nation’s diversity – from factory floor to boardroom. We are committed to working closely with the business community to consider the steps that can be taken to build more inclusive workplaces, including reporting on diversity.”

Although we do not know what will come out of the consultation, it is clear that in conjunction with the prime minister’s recently announced cross-government Commission on Race and Ethnic Disparities, this is an issue that is coming to the fore and very much on the government’s agenda. It seems inevitable that ethnicity pay gap reporting will become a requirement in the future, alongside the current obligation of UK employers with more than 250 employees to submit gender pay gap data. 

What does this mean for employers? 

It is advisable for larger businesses in particular to be proactive and start considering the steps needed to make ethnicity pay reporting a reality so they are prepared for the circumstances if/when it does become mandatory. Even smaller employers may wish to do so to reflect their commitment to a diverse and inclusive workforce.  

Plan for data collection

A report published by PwC in March 2019 found that of the 80 organisations surveyed, 75 per cent lacked the data needed to analyse their ethnicity pay gap. As a result, as a starting point, organisations should encourage their employees to disclose this information and tackle potential barriers, such as legal and GDPR restrictions, concerns surrounding confidentiality and the effectiveness and functionality of HR systems and methodologies for data collection. 

Consider calculation

Once relevant data has been collected, organisations will have to consider how the data will be categorised. This will be important in companies where there are only a small proportion of BAME employees to avoid identifying these individuals.  

Employers may wish to consider using the gender pay gap reporting model they already use and make any relevant adjustments.

Implement a plan

For many organisations, the initial results may be discouraging. However, starting the review process and assessing the position will allow them to put in place measures to address any imbalances at play. Furthermore, by putting remuneration under the microscope, analysis surrounding recruitment, retention and progression will also be subject to detailed assessment.

While there are various challenges for employers to consider, fundamentally, ethnicity pay gap reporting will highlight many of the issues that, as a society, we know need to be addressed so that change can happen.

Charlotte Moorhouse is a trainee solicitor in the employment team at Goodman Derrick