New guidance for employers on ethnicity pay gap reporting

Earlier this year, the government published new guidance with the purpose of helping employers report their ethnicity pay gap data, analyse that data, and from it, develop a plan to narrow the gap. 

The recent Black Lives Matter movement has put huge pressures on government to introduce legislation that would make large companies and employers report their ethnicity pay gaps. This follows evidence from past reviews that black and ethnic minorities face disadvantages in the workplace. 

Back in March of 2022, the government announced that they rejected compulsory reporting but instead agreed to support employers wanting to voluntarily report their ethnicity pay gap data, and they did so by publishing new guidance to help them do so.

Objectives and approach of the guidance

The guidance was finally published in April of this year and it includes advice on:

• Collecting ethnicity pay data for employees
• How best to consider potential issues such as confidentiality, aggregation, and employee location
• Recommended calculations with step-by-step instructions
• Reporting the findings
• Understanding the causes of any disparities through further analysis
• Evidence based approaches towards actions

The government has said that the aim of the guidance is to “develop a consistent, methodological approach to ethnicity pay reporting, which can then lead to meaningful action, while remaining proportionate and without adding undue burdens on business”. 

The guidance largely mirrors the guidance for gender pay gap reporting. However, given the large amount of different ethnicity groups, the government recommends that employers have an analyst check their calculations. 

Employers are encouraged to use the data to help find the underlying causes for pay disparities, decide whether further action is needed and plan accordingly. For example, it may be that a particular ethnic group have lower pay because of the roles that they find themselves in rather than a like for like difference in pay. 

Highlighted is the importance of critical evaluation into whether the employer is doing enough to help various ethnic groups progress. The guidance states that this can be achieved by addressing:

• Whether and why these groups are applying for less well-paid roles
• Why their progress stops at certain levels
• Whether turnover is hight in this particular ethnic group
• Whether some ethnic groups are more likely to work in particular locations and whether this has any impact on their pay

In order to do this, employers need to look at their internal processes as well as any external influences such as:

• What qualifications are needed for specific roles and whether individuals from certain ethnic groups are less likely to have them
• Whether they are aware of any vacancies, apply for them, and if so, are selected for the interview stage
• Whether they are given the same performance rating, promotion opportunities or support to progress

The guidance recommends using detailed ethnic classifications rather than groups like ‘BAME’ wherever possible. As per the 2021 census, employers should divide ethnicity into 5 main categories: white; mixed or multiple ethnicities; Asian or Asian British; black, black British, Caribbean or African; and ‘other ethnic groups’. 

Detailed sub-categories should sit under these main 5. Employers are free to choose whatever categories are appropriate for their workforce but, if an employer decides to aggregate one of the 5 larger ethnic groups set out above, they may not get the full picture. 

The ideal is that the groups should be presented in a way where employees can tick only one option. Employees who do not want to disclose the information should be given a ‘prefer not to say’ option or be allowed to not answer at all by leaving all the tick boxes empty.

Data protection considerations

Dealing with this type of information brings General Data Protection Regulations into play. 

An employee’s ethnicity is regarded as ‘special category data’ and thus is subject to strict rules. As a minimum requirement, employers are expected to explain the following to their employees:

• Why they want the information
• How they will be using he information
• How they will keep the information safe
• The steps they will take to ensure no individual can be identified from the data you publish

Additional points

The government has recommended that statistics for an ethnic group where the number of workers are less than 50 could have confidentiality risks. However, it could be argued that this data would be invaluable as it is commonly the less represented a group is, the more likely discriminatory workplace issues will arise. 

It could be the case that employees are reluctant to share their ethnicity and therefore employers will be left with insufficient data. Whilst providing a ‘prefer not to say’ option is encouraged, workers may fear that providing the data will have a detrimental affect to them. With this in mind, employers should be clear and transparent with employees about the reasons for the data being collected. 

As the updates on ethnicity pay gap reporting is just guidance and not legislation, employers may wonder whether it is worth the hassle. On the other hand, it can be argued that with the increasing judgement on businesses for their environmental, social and governance credentials, shareholders often expect businesses to be transparent and provide data that can be assessed and drive change. 

Additionally, if an employer already has processes in place for mandatory gender pay gap reports, then arguably they have the foundations to begin ethnicity pay gap reporting. Employers should bear in mind that many professionals believe that the government will likely introduce legislation to compel employers to provide this information in years to come, and thus can get ahead by implementing them now.