New guidance for employers wanting to report on their ethnic pay gaps

Over recent years the UK government has been under pressure to introduce legislation to compel large employers to report their ethnic pay gaps following evidence that black and ethnic minorities face multiple disadvantages in the workplace.   

Last year it published a policy paper on this issue called Inclusive Britain. The government rejected compulsory reporting and, instead, promised to support employers who want to voluntarily report their ethnic pay gap data, by publishing new guidance to help them 'navigate the challenges associated with reporting'. That guidance has now been published and comes in five parts:

1. Introduction and overview
2. Understanding and reporting data
3. Collecting ethnicity data
4. Preparing payroll data
5. Making calculations

The government says that its aim is to develop a consistent, methodological approach to ethnicity pay reporting to help employers identify and investigate disparities in the average pay between ethnic groups and develop an action plan to tackle these. 

The calculations

Much of this guidance, including the methodology for the calculations, mirrors the approach set out in the guidance for gender pay gap reporting. If you are a business that already has to report on your gender pay gaps, you'll be au fait with the complex rules that underpin those calculations. Whilst that will help, it doesn't necessarily mean that you'll find it easy to report on your ethnic pay gap. 

The government acknowledges that the scope of ethnicity pay reporting is 'much more complex' and recommends that employers have their calculations 'checked [by] analysts'. That's because gender pay analysis only involves a comparison between two groups, whereas ethnicity pay analysis can potentially involve many ethnic groups, depending on how ethnically diverse a workforce is.

Examining the underlying causes of your ethnic pay gap

To its credit, this guidance doesn't just focus on pay. It wants employers to be able to use the data to help it find out if there are underlying causes for pay disparities, decide if it needs to take further action to address these, and plan accordingly. 

The government sensibly acknowledges that pay disparities may be caused by a variety of factors. For instance, lower pay among a particular ethnic group may be caused by the fact that this group disproportionately work in lower paid roles when compared with other ethnic groups, rather than because of any like for like differences in pay. 

The guidance wants you to critically evaluate whether you are doing enough to help these groups progress. For example, you need to understand why are they only applying for the less well paid roles in the first place? Why does their progress stop at certain levels? Is turnover higher in this particular ethnic group? If you operate across a number of sites, are some ethnic groups more likely to work in particular locations, and does this have any impact on their pay? And, are there the same patterns in different parts of your organisation?

To do this you need to examine your own internal processes as well as any external factors, such as: 

• What qualifications are needed for specific roles and are people from certain ethnic groups less likely to have them?
• Are they aware of vacancies? Do they apply for them and, if so, are they selected for interview?
• Are they given the same performance rating, promotion opportunities or support to progress as other ethnic groups?

Deciding on which ethnic groups to use

The guidance cautions against dividing your workforce into Whites and grouping all other ethnic categories into 'BAME'. It recommends that you use detailed ethnicity classifications whenever possible in line with the 2021 Census for England and Wales. This divides ethnicity into five main categories: White, mixed or multiple ethnic groups, Asian or Asian British, Black, Black British, Caribbean or African and 'other ethnic groups'. Detailed sub-categories sit underneath these. However, you are free to choose whatever categories are appropriate for your workforce (although you will need to be able to defend your choice if challenged). 

Bear in mind that if you decide to aggregate groups to the five larger ethnic groups set out above, you may not get the full picture. For example Bangladeshi and Pakistani employees generally earn less than those from the Indian ethnic group, but this might not be clear from analysis of a broader ‘Asian’ group. 

The ethnic groups should be presented as a list where employees can tick only one option. Employees who do not want to disclose their ethnicity should have the option of ticking ‘prefer not to say’, or not answering at all by not ticking any of the boxes.

Complying with data protection rules

Processing this type of information brings GDPR into play. An employee's ethnicity is regarded as special category data and is subject to strict rules. As a minimum you'll need to tell your staff why you want this information and how you will use it; how you will keep it safe and the steps you will take to ensure that no individual can by identified by the data you publish. 

The government recommends that you don't publish statistics for an ethnic group with less than a certain number of employees because of concerns about confidentiality. If you only plan on publishing this information internally, the government suggests that the minimum category size is between five and 20 employees. However, if you are going to publish the data publicly, the minimum category size should be 50 employees. 

There's (usually) no need to restrict the 'prefer not to say' categories because people shouldn't be able to identify them anyway. 

Deciding on whether it's worth the effort

If you aren't already doing this and there's no legal requirement to start to report on the ethnicity pay gap in your organisation, you may be thinking - is it worth the effort? I suppose that depends on your outlook and priorities. But there's a couple of good reasons for at least thinking about it:

1. Businesses are increasingly being judged on their ESG credentials. Investors, clients and candidates expect businesses to be transparent and to provide data that can be assessed, benchmarked and used to drive change. Reporting your ethnic pay gap data alongside your gender pay gap results is an important aspect of this.

2. It's possible that if change doesn't happen quickly enough, the government will introduce legislation to compel employers to provide this information anyway.

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