Government rejects compulsory ethnic pay gap reporting

Last year we speculated about whether the government was going to compel large employers to report on their ethnic pay gaps after it told parliament that it was 'seriously considering' introducing legislation. We now know that won't happen. Buried in the government's policy paper Inclusive Britain: government response to the Commission on Race and Ethnic Disparities is a section on promoting fair pay which makes it clear that employers will be encouraged rather than compelled to report on their ethnic pay gap.

The government supports the principle of ethnic pay gap reporting and sees this as playing an important part in creating a fairer society for everyone. However, it believes that there are 'significant obstacles for employers looking to create ethnicity pay gap mechanisms' and that it does not want to impose additional burdens on them 'as they recover from the pandemic'. 

Instead, it intends to support employers to publish their ethnic pay gaps by producing guidance - something that the report into the Commission on race and ethnic disparities recommended in March 2021. 

The guidance will help employers address a number of challenges about ethnic pay gap reporting including how to preserve employee confidentiality where the sample group is small. 

It will also recommend that employers use specific ethnic groups rather than broader categories (such as 'BAME') when publishing their data. There are around 18 specific ethnic classifications but, these are often grouped into five different categories to make the process more manageable. But, the problem with conflating ethnicities is that it's much more difficult to obtain meaningful data, not least because the issues faced by one ethnic group are unlikely to be identical to those faced by another. 

Some parts of the country are more diverse than others. The government recognises this and has said that its guidance will help employers in parts of the country with very small ethnic minority populations to interpret their pay gaps and allow for meaningful comparisons.

The government also wants employers to produce a diagnosis and action plan, setting out the reasons for any pay disparity and what they are going to do to address it. The guidance will include 'compelling' case studies drawn from those businesses that already report on their ethnicity pay. This will provide a benchmark to assist other employers to create a good action plan. 

Our view

Earlier this year, the parliamentary committee for women and equalities told the government there was 'no excuse' for not introducing mandatory ethnic pay gap reporting because the systems and structures were already in place. It said that tackling inequality benefits not only marginalised groups, but the whole economy and accused the government of not having the will to deal with it. We share the same view about the benefits of requiring larger businesses to report their pay gaps.

It's disappointing that the government has decided to ignore that advice. As we indicated in our previous article (available here), many businesses are already reporting on their ethnic gender pay gaps and many more support the idea of mandatory reporting. Plus, the job market has become a lot more volatile over the last few months. Good candidates often have a choice of offers and are increasingly starting to make decisions based on the ESG credentials of prospective employers. 

There's also a good business case for improving diversity and inclusion. We know that those organisations with a diverse workforce perform better than those that don't. Engaging people who think differently from each other can help businesses to develop better strategies, risk management and outcomes. And unless organisations collate data about the ethnicity, sex and age of their staff, they won't have an accurate picture of their current position or be able to set realistic targets to improve these.   

Those organisations that are required to report their gender pay gaps may be more inclined to start reporting their ethnic pay gaps once guidance is published as they already have a lot of the data needed. To date, businesses have had to develop their own methodology, which may differ from organisation to organisation. Being able to follow an agreed methodology will help businesses compare their results with other similar businesses and make it easier for candidates and customers to compare results.  

The government has said that it will publish guidance in the summer and we'll let you know when it has. 

Our fixed price employment law service

If you are interested in finding out about how we can support you to report your ethnic pay gap with our fixed-fee annual retainer, or flexible discounted bank of hours service, please contact Gordon Rodham.