The government has published voluntary guidance for employers on ethnicity pay gap reporting.
The Department for Business and Trade, the Equality Hub and the Race Disparity Unit developed the guidance in response to an update to its Inclusive Britain strategy, which was unveiled last year.
The guidance, which was released on Monday (17 April), marks the first time the government has provided advice on establishing a standard strategy to measure pay disparities.
It explains how employers can report on their ethnicity pay, and in particular how to:
Collect employees’ ethnicity data
Gather the required payroll data for ethnicity pay calculations
Make ethnicity pay calculations
Analyse and understand the results of these calculations
Develop an action plan to address any identified disparities
Responding to the guidance, Sandra Kerr, race director at Business in the Community (BITC), says that while it is a “welcome step”, BITC has been clear that the only way to close the ethnicity pay gap is to make reporting mandatory for businesses with more than 250 employees. “Publishing ethnicity pay gap data is the easiest part of the action needed to close the pay gap. The real work will begin when we know the scale of the problem and the collective response needed to address it,” she says.
Kerr hopes that the government’s commitment to providing voluntary guidance for employers will be followed swiftly by making ethnicity pay gap reporting mandatory.
While ethnicity pay gap reporting is not required by law, the guidance states that much of it – including the methodology for the calculations – mirrors the approach set out in the guidance for gender pay gap reporting, which should help businesses avoid having to run separate processes to collect pay data for both sets of calculations.
However, it adds that ethnicity pay reporting is “much more complex than gender pay reporting”, because ethnicity pay analysis covers many more ethnic groupings, depending on how ethnically diverse a workforce is in comparison to gender between two groups.
The government reversed a commitment to make ethnicity pay gap reporting mandatory last year despite receiving several demands for it to do so. It cited “significant obstacles” and fear of placing undue stress on employers during the pandemic as reasons for the U-turn.
Following its publishing of guidance for employers, People Management has asked the government whether it is once again considering making ethnicity pay gap reporting compulsory.
Analysis from PwC last year showed the overall average gender pay gap across the UK has continued to narrow – but very slowly – since mandatory reporting was introduced in 2017.
If there is a chance that collecting and analysing pay disparities by ethnicity goes some way to close the ethnicity pay gap, should reporting be a compulsory requirement after all?
‘Firms won’t voluntarily report’
Analysis of data from BITC found that it could take until 2075 for companies currently capturing their ethnicity pay gap data to publish what their pay gap is. And the analysis also found that unless the government makes ethnicity pay gap reporting mandatory, it will take 30 years (2051) for businesses to even know what their pay gap is.
Abi Adamson, founder and EDI director of The Diversity Partnership, says the only way to address the ethnicity pay gap is to make reporting mandatory: “It’s naive to expect firms to voluntarily report ethnicity pay gap data, as we know from experience that won’t happen. While the guidance is a positive step forward, I sincerely hope an announcement of mandatory reporting is set to follow shortly behind.”
Ethnicity pay gap reporting is “unquestionable” because it is not only an organisation’s duty to create a truly diverse, equal and inclusive workplace, but also a “commercial and reputational imperative”, Adamson adds.
“Organisations that are serious about addressing diversity, equity and inclusion in the workplace will step up,” she says.
People Management reported last year that the number of UK companies voluntarily reporting their ethnicity pay gaps had halved in a year, down from 129 in 2020 to 64 in 2021.
Musab Hemsi, legal director and accredited specialist at Anderson Strathern, says making it essential to declare ethnicity pay gaps is one important step towards addressing the pay differences between ethnic groups in the UK, and it is “disheartening” to see the number of businesses electing to report decreasing.
Progressive UK companies taking the necessary steps to address the issue should do so through both optional reporting and setting out clear strategies to improve equity and “employee experience at work, which is the real goal”, he adds.
“Businesses must show a genuine appetite for improving race equality in their organisations and can do so without being mandated by law,” Hemsi explains.
However, he adds that, when looking at the UK as a whole over the past five years, mandatory reporting of gender pay has “unfortunately yielded no discernible progress” as many factors may have contributed to the supposed narrowing of that pay gap. “It is clear that reporting pay gaps alone is not a panacea to the inherence of race inequality still prevalent in many industries. Reporting can diagnose the problem; however, the measures that each business takes to tackle that problem is the elixir that is sorely needed,” Hemsi says.
Paul Nowak, general secretary of the TUC, says the harsh reality is that, even today, structural racism continues to play a significant role in determining Black workers’ income and career possibilities.“Too often BAME workers are paid less for doing the same job as their white colleagues. Ministers must take bold action to confront inequality and racism in the labour market. The obvious first step is mandatory ethnicity pay gap reporting – not just voluntary guidance,” he says.
Ethnicity pay gap reporting hurdles
Research by Glassdoor from last year found that 43 per cent of Black employees had experienced a pay gap at their company, or believed it existed there. In contrast, 57 per cent of white workers thought there was no ethnicity pay gap at their company.
Ali Hanan, founder and CEO of Creative Equals, says although it is widely known that reporting ethnicity pay gaps is critical to creating fair workplaces, organisations have long grappled with it. “It’s true that ethnicity pay gap reporting is more complex than gender pay gap reporting, but that does not make cause for it to be pushed aside,” he says.
Hanan also emphasises the importance of data-driven and evidence-based measures to close the ethnicity pay gap, and says gathering accurate data “must be a priority”, which can be difficult, especially in toxic workplaces, so organisations will need to work on establishing trusting relationships with their employees or use a third-party auditor.
Charles Cotton, senior performance and reward adviser at the CIPD, says the body recommends large employers not only disclose their pay data by ethnicity, but accompany this with “a narrative to explain the story behind the numbers, as well as an action plan, which talks about the actions planned and taken and the progress achieved to date”.
However, he notes that encouraging employees to disclose their ethnicity can be a challenge when it comes to reporting, and also deciding the appropriate level of analysis when it comes to looking at the data.