Member Article

Recently published government guidance on reporting ethnicity pay data will assist those employers who voluntarily choose to report their data. We highlight the key messages from the guidance and the challenges employers need to address when reporting.

It is a statutory requirement for employers with 250 or more employees to measure and report gender pay gaps. Last year, the government confirmed that it would not introduce the same requirement for ethnicity pay gaps but committed to providing guidance to support the many employers that voluntarily report on their ethnicity pay data. The government has now published its first set of guidance.

Overview

The guidance aims to provide a consistent approach to ethnicity pay reporting to support businesses in taking meaningful action while avoiding unnecessary burdens. 

The guidance provides recommendations on:

• collecting employee’s ethnicity data
• gathering payroll data
• making pay calculations 
• analysing and understanding the results of the calculations; and 
• developing an action plan to address any disparities

Much of the guidance mirrors the approach to gender pay gap reporting in order to minimise any administrative burden relating to data collection.

Areas of complexity 

The guidance highlights several challenges that employers may face while reporting.

Groups

A key challenge associated with ethnicity pay gap reporting is the added complexity of analysing a (potentially) larger number of groups than is required under gender pay gap analysis, which is limited to two groups. If the employee network is ethnically diverse, the government acknowledges that ethnicity pay gap reporting is more complex. 

Employers may need to make decisions on whether (and how) to group ethnicities for the purpose of analysis and the ways in which to draw comparisons which are meaningful.

Causation

As with gender pay gap reporting, an employer may provide equal pay while still reporting a pay gap. 

The guidance stresses that employers should take care in determining the underlying causes of any pay disparity and not assume that a pay gap is indicative of discrimination. On finding that there is an ethnicity pay gap, employers are encouraged to consider whether:

• certain ethnic groups are more likely to be recruited into lower paid roles
• employees of a certain ethnic group get ‘stuck’ at certain levels
• employees of a certain ethnic group are more likely to work in a location that impacts the pay gap 
• the turnover rate of employees of a certain ethnic group impacts the pay gap; and
• starting salaries and bonuses differ by ethnicity

After determining the above, employers should investigate whether the results are because of internal factors (such as the company practices) or external factors which are out of the company’s control (though there will likely be mitigating actions that the company could take in relation to these). For example, is the existence of more employees of a certain ethnicity in lower-paid roles a result of company practices which cause those employees to fail to apply for or not be awarded promotions?

To discern the cause of a pay gap, employers may wish to obtain further data, including staff surveys, recruitment data and progression data.

Due to the number of factors that could be relevant to a pay disparity and complexity in determining the same, the guidance recommends that employers take care in explaining any disparity to employees.

Addressing any pay disparities

If an ethnicity pay gap is revealed, the guidance recommends that employers implement an action plan to reduce any pay disparities. The action plan should include clear, measurable targets and a time frame for achieving these. 

While employers are encouraged to be ambitious, the guidance warns against setting a target for a 0% pay gap; such a goal is not realistic and fails to reflect the different factors that may contribute towards an ethnicity pay gap. 

The guidance provides a specific focus on improving diversity of talent. This type of improvement can significantly reduce any pay disparity in the future. The government’s positive action guidance provides further direction for employers wishing to engage in hiring practices which target potential employees from certain ethnicities. 

 

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