UK employers urged to prepare for ethnicity pay gap reporting

Susannah Donaldson of Pinsent Masons, who specialises in equality law and pay transparency, provided the advice following the publication of a report that adds to the calls on the UK government to move forward with its plans to introduce a mandatory ethnicity pay reporting regime.

The central recommendation in the report by the Women and Equalities Committee of MPs at the UK parliament was for the UK government to introduce mandatory ethnicity pay gap reporting by April 2023 for all organisations that currently report their gender pay gap (GPG) in line with the GPG reporting regulations. It said the ethnicity pay gap reporting laws “should include the requirement for employers to publish a supporting narrative and action plan” alongside the raw data.

Currently, while thousands of UK employers are obliged to annually report their GPG, there is no legal duty on them to report in relation to ethnicity pay. Despite this, many employers voluntarily do so. According to the Committee’s report, in 2021, 19% of employers in the UK reported on ethnicity pay, up from 11% in 2018, and Donaldson said many businesses go further and report on other diversity pay gaps such as disability, sexual orientation and class too.

The government consulted on the approach to take to ethnicity pay reporting in 2018. It said then that “it is time to move to mandatory ethnicity pay reporting”. However, it has yet to publish its response to the consultation, which closed in January 2019.

In its new report, which followed a one-off evidence session held in January which examined the case for mandatory ethnicity pay gap reporting, the Women and Equalities Committee said that it had asked Paul Scully, the minister for small business, consumers and labour markets, for an update on the government’s proposals and were told in response that the government is continuing to assess the next steps and will respond “in due course”.

According to the report, Scully has highlighted the “wide range of technical and data challenges that ethnicity pay reporting brings”. Scully referenced issues around statistical robustness, preserving anonymity, data protection, the burden on business and reporting ethnicity gaps using a White/non-White binary figure for a characteristic with multiple categories, according to the Committee.

The Committee said that it recognises the complexities involved in capturing and reporting ethnicity pay gap data, but said “solutions are available as long as employers are willing, and the purpose of the exercise is clear”.

Donaldson said there is already evidence to support the Committee’s view.

“In the absence of legislation, a number of employers have published their ethnicity pay gaps voluntarily using the same pay data and a similar methodology as that which applies to GPG reporting, demonstrating that the hurdles which the government has identified are not insurmountable,” Donaldson said.

She said the Committee’s report “provides some useful insights” into how the plans on ethnicity pay reporting could evolve.

“There is support from witnesses who gave evidence to the Committee for the view that employers could use the same pay statistics and definitions of workers, pay, and reporting dates as currently used for gender,” Donaldson said. “There is also a belief that businesses that currently report for gender should also report ethnicity pay gaps on the basis that they are well resourced to calculate and report ethnicity data, and their number is manageable for policing non-compliance.”

“Employers are urged to ask their employees to share information using the 18 ethnicity categories listed in the census. The thinking is that this will make people more comfortable in disclosing their ethnicity rather than forcing them to choose between the binary options of ‘White’ or ‘BAME’. However, one view is that businesses should only report the binary headline figure and use the disaggregated data for ‘granular analysis’ in the accompanying narrative they provide, where it is appropriate to do so,” she said.

A role for the Information Commissioner’s Office (ICO) has also been identified, with a call on it to issue guidance to help employers comply with data protection law when reporting ethnicity pay gaps.

The uneven spread of ethnic minority employees in organisations across the UK, and the impact this might have on meaningful reporting where the sample sizes vary, is also addressed in the report. One expert told the Committee, however, that small sample sizes “do not negate and render the exercise futile” because the data can still “reveal any trends in ethnic disparities and indicate areas where an organisation should challenge itself to do better”.

An expert has further recommended that the government choose one body to be responsible for enforcing any new ethnicity pay gap reporting regulations, with it being currently unclear whether enforcement powers will sit with the Department for Business, Energy and Industrial Strategy or the Equality and Human Rights Commission. Another expert has called for implementing legislation to be scheduled in such a way that it provides time for employers to run disclosure campaigns and that a sufficient period is also allocated between the publication of guidance and the first data capture point, according to the report.

Donaldson said: “It is possible that the government may not take action until the next scheduled full review of the GPG regulations, anticipated later this year. In practical terms, this means employers may not be required to report until April 2023. In the meantime, employers should be focussing their efforts on collating and analysing their ethnicity data and opening up conversations about race and ethnicity more generally across their organisation to build trust and understanding.”

“The average response rate for diversity data questionnaires is between 10-50% so an effective communications plan is essential to win hearts and minds and drive up response rates,” she said.