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Ethnicity Pay Gap reporting

23 March 2021

Ethnicity pay gap reporting is not currently mandatory for employers, but certainly movement is building towards far greater transparency and disclosure on ethnicity pay as part of a business’s ESG reporting, just as it did around gender pay.

Traction builds in government

The government has encouraged employers to take a voluntary approach to ethnicity pay gap reporting to date. However, following an independent review into ethnicity pay gap reporting in 2017 and a later report, the government indicated it was likely that mandatory reporting would need to be introduced in order to enable employers to identify the barriers to progression in the workplace by ethnic minorities. 

In 2019, the UK government therefore ran a consultation on ethnicity pay reporting by employers. Subsequently, over 130,000 people signed a petition submitted in June 2019 to introduce mandatory ethnicity pay gap reporting in the UK, and the government confirmed that Parliament would consider this petition for debate. The date for the debate has yet to be confirmed.

Is there an ethnicity pay gap?

According to a study by the Office of National Statistics (ONS) on 2019 data, the ethnicity pay gap between white and ethnic minority employees has narrowed to its smallest level since 2012 in England and Wales. However, the study also confirmed that in 2019 most minority ethnic groups analysed in the study continued to earn less than white British employees and highlighted that, regionally, there were large differences in the ethnicity pay gap. To date, the ONS has not released a comparative study on 2020 ethnicity pay data.

Additional complexities are presented by the fact that an ethnicity pay gap is not simply a factor of ethnicity but also of other demographic factors such as gender, age and location. Interestingly, the ethnicity pay gap is larger for men than women, though for most ethnic groups, men continue to earn more than women. This means that gender pay reporting remains a key exercise for employers in addition to any ethnicity reporting - read more on gender pay

Why does ethnicity reporting matter?

With the Black Lives Matter movement and increased transparency around gender and pay, it seems clear that ethnicity pay gap reporting cannot simply be viewed as a tick-box exercise for employers to mitigate reputational risk to protect their businesses. It is about employers demonstrating a genuine commitment to equality, diversity and inclusion for the benefit of both current and future employees alike, and not just their external stakeholders such as clients, suppliers and investors.

What challenges does ethnicity pay gap reporting pose for employers?

Ethnicity pay gap reporting is not without its challenges. The most obvious initial impediments to employers are that many do not hold ethnicity data on their employees. There is no legal obligation for employees to divulge which ethnic group they identify with and requests to employees for ethnicity data can achieve poor response rates if they are not managed very carefully. Therefore, employers need to put in the groundwork to build a workplace culture that encourages employees to disclose this information and prevent its absence from being a barrier to employers taking the positive step of analysing and publishing ethnicity pay data.

Other challenges are likely to include the fact that individuals may not identify with any of the proposed categories of ethnic groups or employers may use classifications that do not match those that may be ultimately be proposed by government. Determining what those classifications should be and how to compare pay across different ethnic categorisations is not necessarily straightforward.

Employers also need to ensure that the anonymity of their employees is maintained when collecting ethnic data – this raises the question of the potential ability to identify individuals where the ethnic category is particularly small within an organisation.

The government’s consultation proposed that only employers of 250 or more employees should have to report - very much in line with the gender pay gap reporting obligations. Figures reported for smaller employers may prove to be less informative because of limited data – the government’s 2019 consultation had already highlighted that reporting at a more granular level risks results being skewed by particularly large or small pay values due to lower numbers within certain ethnic groups.

Future reporting

If ethnicity pay gap reporting follows the same trajectory as gender pay gap reporting, it seems inevitable that it will become a mandatory obligation over the next couple of years.

Prudent employers should certainly be getting ready now and tackling likely hurdles in readiness for mandatory ethnicity pay gap reporting. The CBI is firmly of the view that employers should not be waiting for ethnicity pay gap reporting to become mandatory before looking at how they can improve equality in their organisation and this reflects a general societal move to greater equality and transparency in ethnicity pay and progress.  

BDO can assist employers - both with analysing their ethnicity pay data and also applying that data to move towards making a meaningful organisational change. For help and advice, please get in touch with your usual BDO contact or anyone in our gender pay gap reporting team.