‘Extensive’ ethnicity pay gap reporting guidance issued to UK employers

The aim of the new ethnicity pay gap reporting guidance, published last week, is to develop a consistent, methodological approach to ethnicity pay gap reporting, which can then lead to meaningful action. The guidance explains how employers can report on their ethnicity pay and how they should collect employees’ ethnicity data; gather the required payroll data required to make and analyse ethnicity pay calculations; and develop an action plan to address any identified disparities.

The new guidance “strongly discourages” binary reporting, which is the approach currently adopted by most businesses. Although it allows employers to aggregate data across five broad ethnic groups if there are confidentiality concerns, the guidance recommends that employers should “try to show as many different ethnic groups as possible in the analysis” and makes reference to the ethnicity classifications in the most recent UK census. By way of illustration, the guidance states that this would mean conducting 10 calculations each for the mean and median pay gap calculations based on the five aggregated groups and 171 calculations each for the mean and median pay gap calculations based on the census breakdown.

Race and ethnicity law expert Shuabe Shabudin of Pinsent Masons said that this recommendation “was likely to cause a few headaches” because binary reporting is very often used by employers that are already assessing their ethnicity pay gap. “We are regularly asked by employers how they can increase the response rates to employee surveys and how they can get more data. Clearly reporting on a smaller dataset is going to raise data protection issues, and that is always enough to put even well-meaning employers off,” he added.

Employment and equality law expert Susannah Donaldson of Pinsent Masons said that much of the guidance – including the methodology for the calculations – mirrors the approach set out in the guidance for gender pay gap reporting, allowing employers to avoid having to run different processes to collect pay data for both sets of calculations. She added, however, that ethnicity pay reporting is “much more complex” than gender reporting and that the new guidance went further than many employers thought it would. “While ethnicity pay gap reporting remains voluntary, the launch of this guidance will have a significant impact on how businesses collect, analyse and use ethnicity data,” Donaldson said.

The guidance suggests that employers should report on the proportion of employees that did not disclose their ethnicity when asked. Donaldson said: “If response rates are low then not only will that lead to the stats being fairly meaningless, but it will also reflect unfavourably on employers as it suggests a general lack of employee engagement. This highlights the importance of investing time and effort in implementing an effective comms campaign to drive up response rates.”

The guidance directs employers to look at the Race Disparity Unit's standards for ethnicity data to ensure the results are statistically sound and to protect confidentiality, but Donaldson said it was still unclear whether the guidance could be relied upon to establish a lawful basis for collecting and processing ethnicity data from GDPR perspective. “Preserving confidentiality will be a key concern for employers, particularly given the recommendation that employers should use as many different ethnic groups as possible for the analysis. This could easily lead to employees being identifiable,” she added.

The guidance also encourages employers to scrutinise the underlying causes of any pay disparities and suggests that, as well as publishing an accompanying narrative, employers could publish an action plan explaining how they intend to address any ethnicity pay gaps. “Employers might want to consider undertaking a pay audit so they can say with confidence that any gaps are not the result of discriminatory pay practices and take steps to rectify any risk areas which are identified,” Donaldson said.

Shabudin said the new guidance “paves the way” for ethnicity pay gap reporting to become mandatory. He added: “Until that time, however, companies should voluntarily report this information, and see it as a real opportunity to get the best out of their staff and to actually drive positive cultural and social change.”

“Very sensibly, the guidance recommends analysing the data before you put pen to paper on any initiatives to try and correct any disparities. Equally sensible is the recommendation to then create an action plan or strategy. Not only will that focus an employer’s efforts, it also serves as a great indicator of the stance that the company is taking and can give confidence both to existing employees and jobseekers alike,” Shabudin said.