Reporting the ethnic pay gap

Over recent years the UK government has been under pressure to introduce legislation to compel large employers to report their ethnic pay gaps following evidence that black and ethnic minorities face multiple disadvantages in the workplace. Last year it published a policy paper on this issue called Inclusive Britain. The government rejected compulsory reporting and, instead, promised to support employers who want to voluntarily report their ethnic pay gap data by publishing new guidance. That guidance is now available and comes in five parts: an overview, understanding and reporting data, collecting ethnicity data, preparing payroll data and a detailed guide on how to make the calculations, including worked examples. The government says its aim is to develop a consistent, methodological approach to ethnicity pay reporting to help employers identify and investigate disparities in the average pay between ethnic groups and develop an action plan to tackle these. The calculations Much of the guidance, including the methodology for the calculations, mirrors the approach set out in the guidance for gender pay gap reporting. However, the scope of ethnicity pay reporting is much more complex and the government recommends that employers have their calculations “checked [by] analysts”. That’s because gender pay analysis only involves a comparison between two groups, whereas ethnicity pay analysis can potentially involve many ethnic groups, depending on how ethnically diverse a workforce is. Examining the underlying causes of your ethnic pay gap To its credit, this guidance does not just focus on pay. It wants employers to be able to use the data to help find out if there are underlying causes for pay disparities, decide if they need to take further action to address these, and plan accordingly. The government acknowledges that pay disparities may be caused by a variety of factors. For instance, lower pay among a particular ethnic group may be caused by the fact this group disproportionately works in lower-paid roles when compared with other ethnic groups, rather than because of any like-for-like differences in pay. The government wants employers to critically evaluate whether they are doing enough to help these groups progress. For example, you need to understand why they are only applying for the less-well-paid roles in the first place. Why does their progress stop at certain levels? If you operate across a number of sites, are some ethnic groups more likely to work in particular locations, and does this have any impact on their pay? And are there the same patterns in different parts of your organisation? To do this you need to examine your own internal processes, such as what qualifications are needed for specific roles and whether people from certain ethnic groups are less likely to have them, as well as any external factors. Deciding on which ethnic groups to use The guidance cautions against dividing your workforce into “Whites” and grouping all other ethnic categories into “BAME”. It recommends using detailed ethnicity classifications whenever possible in line with the 2021 Census for England and Wales. This divides ethnicity into five main categories: White, mixed or multiple ethnic groups, Asian or Asian British, Black, Black British, Caribbean or African and “other ethnic groups”. Detailed sub-categories sit underneath these. However, employers are free to choose whatever categories are appropriate, provided they are able to defend their choice if challenged. Organisations that aggregate groups to the five larger ethnic groups may not get the full picture. For example, Bangladeshi and Pakistani employees generally earn less than those from the Indian ethnic group but this might not be clear from analysis of a broader “Asian” group. The ethnic groups should be presented as a list where employees can tick only one option. Employees who do not want to disclose their ethnicity should have the option of ticking “prefer not to say”. Complying with data protection rules Processing this type of information brings the General Data Protection Regulation into play. An employee’s ethnicity is regarded as special category data and is subject to strict rules. As a minimum you will need to tell your staff why you want this information and how you will use it; how you will keep it safe and the steps you will take to ensure no individual can be identified by the data published. The government recommends that organisations do not publish statistics for an ethnic group with less than a certain number of employees because of concerns about confidentiality. For internal publication, the minimum category size is between five and 20 employees, but for external publication, the minimum category size should be 50 employees. Is it worth the effort? If you aren’t already doing this and there’s no legal requirement to start to report on the ethnicity pay gap in your organisation, you may be thinking – is it worth the effort? That depends on your outlook and priorities. But there’s a couple of good reasons for at least thinking about it: Real estate businesses are increasingly being judged on their ESG credentials. Investors, clients and candidates expect businesses to be transparent and to provide data that can be assessed, benchmarked and used to drive change. Reporting your ethnic pay gap data alongside your gender pay gap results is an important aspect of this. It is possible that if change does not happen quickly enough, the government will introduce legislation to compel employers to provide this information anyway. Joanne Moseley is a lead practice development lawyer in the employment law team at Irwin Mitchell LLP The guidance is available here.  Photo © Brett Jordan/Unsplash