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April 19, 2023

UK targets ethnicity pay gaps with reporting guidance

Some have suggested that the government could expand the gender pay gap reporting platform to include ethnicity data (Photo: fauxels/Pexels)
Some have suggested that the government could expand the gender pay gap reporting platform to include ethnicity data (Photo: fauxels/Pexels)

Government guidelines provide employers with a standardised voluntary framework to collect ethnicity data, in a bid to address disparities in pay between ethnic groups.

Though the UK government does not intend to make ethnicity pay gap reporting compulsory, this week it released official guidance to encourage employers to do so voluntarily.

The guidelines – which were initially expected last summer – aim to assist employers in collecting, reporting and analysing pay differences across ethnic groups in their workforce.

The government said its intention is “to help those employers who want to report their ethnicity pay data by providing a consistent approach that they can follow, which will allow for meaningful comparisons”.

For employers that are willing to analyse their pay gaps but have been reluctant to do so without a standardised methodology, this new guidance will be very welcome, according to Tom Heys, legal analyst at law firm Lewis Silkin. “Now that there is a standard approach, these employers will finally be able to begin making progress,” he said.

The government noted that several of the recommendations mirror the approach taken in gender pay gap reporting, meaning companies don’t have to run different processes for both sets of calculations.

However, whereas gender pay gap reporting is mandated by law – which includes UK employers being legally required to collect and disclose gender data to HM Revenue and Customs – ethnicity pay gap reporting is not, and any ethnicity datasets rely on voluntary disclosure by employees.

The government’s own guidance says ethnicity pay reporting is “much more complex” than gender pay reporting because it requires comparisons between more than two groups of people. It recommends that companies collect data on the basis of five broad ethnic classifications: white people, black people, Asian people, mixed ethnicity people and “other”.

While the guidelines should help to establish more detailed, consistent and comparable datasets, they come with caveats. “Any ethnicity pay gap analysis is meaningless if it is calculated from only a small proportion of the workforce,” said Lewis Silkins’ Heys. Employers must first build their datasets by encouraging as many employees as possible to disclose their ethnicity data, he added.

The government also warns that complexities around ethnicity pay gaps will require employers to carefully scrutinise and assess the underlying causes of any pay differences. “There could be legitimate reasons why there are variations in pay across ethnic groups. It should not be assumed that any disparities are necessarily a result of discrimination,” it said.

View from the top

Pay gaps often reflect the under-representation of ethnic minorities or women at an organisation’s senior levels. This is apparent in the results of the Parker Review, set up to examine and assess the ethnic diversity of UK boards.

In its latest update, the review found that most FTSE100 companies have at least one board director from an ethnic minority background (49 companies have more than one), but only 67 per cent of FTSE250 companies do.

New targets proposed by the review include that every FTSE350 company should set their own percentage target for senior management positions to be filled by ethnic minority executives by December 2027. The review also says that the 50 largest private companies should have at least one ethnic minority board director by December 2027.

For companies that have publicly pledged to implement policies or plans to address pay disparities, the government guidance and Parker Review targets are useful tools. 

However, ethnicity pay gap reporting should not be considered an end in itself, but part of a wider and more comprehensive diversity, equity and inclusion strategy, said Heys. While the government guidelines are a good start, he is unconvinced about their impact.

“Time will tell whether it will help motivate more employers to analyse and publish their gaps… [but] there is no central database allowing for easy comparisons between companies,” he said. “This means that, without trawling through many different websites, it is difficult for employees to see how their employer’s gaps compare to others.”

The government could overcome this issue by expanding the gender pay gap reporting platform to include ethnicity pay gap data, he added.

A service from the Financial Times