What does the CRE report say about ethnicity pay gap reporting?

While it is unclear how the government plans to tackle wage disparities, businesses should consider how they report this data, say Gillian MacLellan and Rebecca Hayes

While media attention focused on institutional racism in the UK, there are several aspects of the report by the Commission on Race and Ethinic Disparities (CRE) that are relevant to employers – particularly in relation to ethnicity pay gap reporting.

Although the report stopped short of recommending mandatory ethnicity pay gap reporting, where businesses do publish this on a voluntary basis, the report says it should be accompanied by a diagnosis and action plan. This plan should set out the reasons that any disparities exist and what will be done to address them. 

It is unclear how the government plans to tackle the ethnic pay gap. The Queen’s speech rather vaguely said that “measures will be brought forward to address racial and ethnic disparities”. In a Queen’s speech supplementary document, which refers to the report and race, there is no mention of plans in relation to ethnic pay disparities. It does, however, explain that the government intends to respond “in detail to the findings and recommendations” of the CRE. We assume its intentions on ethnic pay disparities will become clearer when it publishes its response to the report.

What is an ethnicity pay gap?

An ethnicity pay gap is a calculation of the difference between the median hourly earnings of, for example, white or white British employees and other ethnic groups as a proportion of median hourly earnings of the reference group. 

An ethnicity pay gap report can therefore evidence how different ethnic groups are represented in an organisation, across different pay bands, and will enable employers to understand if there are unfair disparities and help drive strategies for the recruitment and retention of ethnic minority groups.

How should employers report their pay gap?

There is no consensus among employers on how ethnicity pay gap reporting should be broken down. Some favour reporting the pay gap between white and all ethnic minority staff, while others are in favour of a breakdown of ethnic groups. The report adds to this debate by recommending that the data be disaggregated by different ethnicities to provide the best information to facilitate change. 

An important step is to stop comparing ethnicity pay gap reporting with gender pay gap reporting. Reporting only one figure may have the benefit of simplicity, but it masks significant disparities between ethnic groups. 

According to the latest Office for National Statistics (ONS) data, the pay gap for Pakistani employees is 16 per cent and for Black African employees it is 8 per cent. Yet when all ethnicities are included in one reference group, the overall pay gap figure is 2.3 per cent. 

Steps to consider with voluntary reporting

Businesses should apply several ethnic minority categories when they are deciding to report their pay gap. The ONS has categorised ethnicities into five overall categories, which are: white; mixed/multiple ethnic groups; Asian/Asian British; black/African/Caribbean/black British; and other ethnic groups.

Once an employer has decided how they are going to classify ethnicity, they need to take active steps to gather the data. Data capture is a significant first step in understanding where inequalities lie within the workforce. 

The Race at Work Charter has several steps organisations can follow to improve how they gather ethnic minority data. Where there is a low uptake of employees providing this data voluntarily, some employers have launched a focused campaign to encourage their staff to voluntarily provide data on their ethnicities.

Employers will need to be aware of the various layers of data protection compliance when gathering this data and ensure that they identify the lawful basis for processing this data. They will then need to carry out an analysis of the results and develop an action plan to map out solutions to tackle any disparities. This action plan should ideally be summarised in the published ethnicity pay gap report.

As has been learned from gender pay gap reporting, it is only when an organisation crunches the numbers that they find out where the problems lie. While there are obvious differences with gender pay gap reporting, the same theory applies, and businesses need to use the data to start building the solution.

Gillian MacLellan is a partner and Rebecca Hayes a senior associate at CMS