Ethnic pay gap reporting: an update

Catherine Bourne explains where we are in the debate around the introduction of mandatory ethnic pay gap reporting

Credit: Wanlee Prachyapanaprai/iStockphoto/Getty Images

In February, the House of Commons Women and Equalities Committee published a report calling on the government to make ethnicity pay gap reporting mandatory by April 2023 as a first step to addressing pay disparities between employees from different ethnic backgrounds.

The report – and the statement by the committee’s chair, Caroline Nokes, that there is ‘no excuse’ for government inaction on the matter – was the latest example of mounting pressure on the government to introduce a system of mandatory ethnicity pay gap reporting, similar to that of mandatory gender pay gap reporting which was introduced in 2017 and applies to companies with 250 or more employees.

In light of this and the increasing support from – and voluntary disclosure of their ethnicity pay gap by – businesses and trade unions, it appeared safe to assume that mandatory ethnicity pay gap reporting for large businesses was on the way. 

However, just as commentators were wondering what it would look like and how employers could begin to prepare for it, on 17 March 2022, the government published a policy paper in response to the report from the Commission on Race and Ethnic Disparities (CRED), published on 31 March 2021. Within that wide-ranging document the government confirmed it will not be legislating for this “at this stage”. 

How did we get here?

The government first consulted on the issue of mandatory ethnicity pay gap reporting back in 2018 and had yet to respond to that consultation, despite increasing pressure on it to do so. 

A petition calling for mandatory ethnicity pay gap reporting was launched in 2020, received more than 130,000 signatures and was debated in Parliament in September 2021. The government’s response had been to refer to the 2018 consultation and state that it would respond to that “in due course”. In the meantime, many large businesses, including Deloitte, PwC, Bank of England, KPMG, the Civil Service and EY, began reporting their ethnicity pay gaps voluntarily to promote equal opportunities. Indeed, the Women and Equalities Committee noted in its report that the number of employers publishing their ethnicity pay gap increased from 11 per cent in 2018 to 19 per cent in 2021.

In October 2020, 30 business leaders brought together by Business in the Community, wrote a letter to the prime minister, urging him to recognise that a mandatory duty to report ethnicity pay gap is a tool to create fair workplaces, not a burden. 

So, the February report by the Women and Equalities Committee was the latest in a long line of developments encouraging the introduction of mandatory ethnicity pay gap reporting. The main exception to this was the report from the CRED, which instead recommended employers that choose to publish their ethnicity pay gap figures be provided with guidance. That is the route the government has chosen to take.

Now what?

Despite not legislating to make ethnicity pay gap monitoring compulsory, the government has committed to “support employers across the UK who want to publish their ethnicity pay gaps”. This will be done through the Department for Business, Energy and Industrial Strategy (BEIS) publishing new guidance on voluntary ethnicity pay gap reporting in “summer 2022”. 

The expected guidance will seek to address the challenges associated with ethnicity pay gap reporting, as identified in the CRED’s report. In particular, it will:

  • advise on addressing obstacles faced by employers who wish to create ethnicity pay gap mechanisms, such as employee confidentiality;

  • encourage employers to use specific ethnic groups, rather than broader categories (such as ‘white’ and ‘non-white’) when publishing their data (where appropriate);

  • support reporting across demographically different areas (ie, assist employers in parts of the country with very small ethnic minority populations to carry out meaningful comparisons); 

  • include case studies of companies who are already reporting their ethnicity pay gap; and 

  • provide employers with the tools to understand and tackle pay gaps within their organisations.  

In short, if your organisation wants to report on its ethnicity pay gap, it can do so and the government will provide guidance to help, but the company will not have to do this. 

Having said that, despite the government’s position, there is increasing demand on companies by employees, candidates and customers to publish their ethnicity pay gap and many employers are already doing so. 

Race equality is still firmly on the agenda and ethnicity pay gap reporting is an effective way of demonstrating the culture of an organisation as being inclusive and an environment where people can succeed and earn well, whatever their ethnicity. If the figures do not paint such a picture, the exercise of gathering the data highlights issues and provides organisations with the opportunity to focus on, explain and address them going forward. 

Regardless of the legal position, therefore, it is arguable that companies have a moral obligation to be transparent around their ethnicity pay gap. The CIPD’s Ethnicity Reporting Guide is a good resource for companies wishing to plan what they are going to do, though those steps will need to be reviewed once the government guidance is published. It is advisable for companies to be prepared to act swiftly when it is. 

Catherine Bourne is an associate in the employment team at Kingsley Napley