Ethnicity pay reporting most relevant to ethnically diverse workplaces

A 2019 Government report on ethnicity revealed an ethnicity pay gap of around 23% in London and around 1.4% in Wales.

This stark statistic reveals an obvious point: where you have a higher concentration of ethnic minorities, you are going to have a much wider pay gap than in a population that tends not to be ethnically diverse. The same is likely to be true in large, multicultural workforces as compared with small, homogeneous workplaces. This means that, when it comes to eliminating an ethnicity pay gap, most of the progress to be made is in already ethnically diverse workplaces. Paradoxically, those workplaces which consider that they 'don't have a problem with race' are the ones which could derive most benefit from the guidance.

Guidance: overview 

In April 2023, the government published voluntary guidance on ethnicity pay gap reporting. In broad terms, it highlights that much of the guidance mirrors what can be found in the guidance on gender pay gap reporting, with the important difference that ethnicity pay gap reporting is far more complex because it involves more than two groups. There is also currently less data gathered about ethnic profile so the starting point is not so clear-cut. 

How big is your pool for comparison?

The guidance emphasizes that there must be sufficient data gathered in order for the exercise to be meaningful. The data set should be sufficiently large to reveal a trend; for reasons of privacy, it should also not be possible to identify individuals within the data set. The guidance recommends a minimum of 50 persons within each ethnic group; where this is not the case, smaller groups should be aggregated together. 

Once the data has been gathered, comparisons between groups may be made, and an analysis of the reasons for this. The guidance recommends a granular approach when making comparisons, so not going a binary comparison between white and non-white groups.

Guidance detail

The guidance is divided into five sections and below is an extract of some useful points from each: 

• Introduction/Overview – the aim of the guidance is to develop a consistent, methodological approach to ethnicity pay reporting. The aim is not to add to undue burdens on business but to lead to meaningful action. 
• Understanding and reporting your data – advises employers to consider factors which could explain disparities, such as location of business. Highlights that some factors may be internal (company practices) whole others are external (societal trends): even where factors are external, is there anything the company could do to mitigate this? Consider adding a supporting narrative to explain the data and an action plan with measurable goals.
• Collecting ethnicity data – when collecting data, employers should ask people to specify their ethnicity based on the Census, including an option, 'prefer not to say'. People should be asked to tick only one box. Involve experts if necessary. As this is special category data, comply with the requirements of the GDPR and let people know how you will use this data.
• Preparing your payroll data – determine which employees are in scope, the relevant pay period and calculate relevant pay for each employee in scope. Be clear about what is included in 'pay' and how to calculate an hourly rate.
• Making your calculations – This largely mirrors guidance on gender pay gap reporting, with some important differences, namely, deciding which ethnic groups to make comparisons between, including whether to aggregate ethnic groups based on workforce size (see above).

The guidance recommends calculating:

• percentage of each ethnic group in each hourly pay quarter
• mean (average) ethnicity pay gap using hourly pay
• median ethnicity pay gap using hourly pay
• percentages of employees in different ethnic groups in the organisation
• percentage of employees who did not disclose their ethnicity – they either answered ‘prefer not to say’ or gave no answer 

How to decide whether to monitor ethnicity pay gap

Increasingly, Diversity and Inclusion (D & I) initiatives are central to the DNA of an organisation. Decisions will often be made at board level, in conjunction with HR, about D & I priorities and strategy, possibly under the umbrella of a wider ESG strategy. The focus is not just on compliance but rather on championing best practice and bringing about culture change on a voluntary basis. With this in mind, and given that regulators and investors are giving greater attention to D & I as a measure of corporate health, businesses should familiarise themselves with what the guidance has to offer and decide:

• Is our business apt for ethnicity pay gap reporting (based on workforce size, its ethnic diversity, given our strategic priorities and third-party relationships)?
• Do we currently have enough data on the ethnic profile of our workforce to carry out ethnicity pay gap reporting? If not, how can we improve ethnicity data monitoring?
• If we decide to carry out ethnicity pay gap reporting, should we involve experts, such as lawyers or HR consultants?
• Do we intend to publish the results internally, externally, or both?
• Do we want to link this to our gender pay reporting cycle?
• If the exercise reveals an ethnicity pay gap, will we be prepared to tackle this and what might that look like?

Appetite for change will determine whether businesses commit to ethnicity pay gap reporting

A degree of speculation will be required before embarking on the exercise, essentially asking whether there is appetite to make changes within the organisation to address the causes behind any ethnicity pay gap. It is a bit chicken and egg: many organisations will avoid going down this route if they are not prepared to change the way they do things, others will embrace reporting if they already intend to address inequality. Care needs to be taken as not all measures to remedy inequality will be lawful. Any action plan should have regard to the limits set by the positive action provisions of the Equality Act 2010.