Mind the Gap: new guidance on ethnicity pay gaps at work

The government has issued guidance on ethnicity pay gaps at work. Given that there are more variables than when conducting gender pay gap reporting, employers may lack information about employees’ ethnicity and there is a vast variation between business’ employing from a range of ethnic backgrounds and those who do not, the government has decided not to make ethnicity pay gap reporting compulsory. However, awareness of pay gaps can be helpful to understand your workforce and whether your business is operating optimally for all your employees. Below is a brief guide to ethnicity pay gap reporting, how to address gaps and why this is worthwhile.

How do I report on ethnic pay gaps in my business?

It may be that you do not want to report pay gaps externally, but just want to use this data within your business. The government guidance discusses:

• Collecting employees’ ethnicity data;
• Gathering payroll data to make ethnicity pay calculations;
• How to make ethnicity pay calculations;
• Analysing and understanding the results of your calculations and
• How to act on disparities between ethnic groups and pay.

To make your calculations you will need to collect data about the average ethnicity pay gap and bonus gap, the proportion of each ethnic group receiving a bonus and proportion of each ethnic group within pay quartiles. You will also need to request ethnicity data using the self-classification system used by the 2021 census to calculate the representation of ethnic groups across your business. It is also important to note the percentage of employees who do not disclose their ethnicity.

It is not recommended that you carry out ethnicity pay gap analysis unless you have a sufficiently large employee sample size (5-20 employees for internal reporting and at least 50 employees for external reporting). The statistics are less likely to be accurate and more likely to be governed by a specific individual’s performance with a small sample size and publishing statistics may identify individuals. If your business employs individuals from a range of ethnic backgrounds, a smaller sample size will be required than for business’ with less ethnic diversity where a larger sample size will be needed to collect meaningful data.

For better accuracy you should be as specific as possible on ethnicity, but where groups have to be amalgamated the government guidance recommends five broad categories: white, black, Asian, mixed and other. Checking calculations with analysts is advisable as the most important point made throughout the guidance is that the statistics must be robust and data protection laws must be complied with and so regardless of the categories you choose to analyse, these points should be your focus.

Ethnicity data is special category personal data, which you are prohibited from collecting or using unless you have a lawful basis such as the processing is necessary for the purposes of a legitimate interest pursued by you as the employer, but the impact of the processing on employees needs to be balanced against the interest pursued by your business and there is a special category condition, which will be met if you are processing this personal data revealing racial or ethnic origin to identify or review equality of opportunity or treatment between people to promote or maintain this. It is advisable to undertake a data protection impact assessment (DPIA) prior to the processing, our data protection experts can help with this. 

 What action can I take if there are ethnicity pay differences?

 There are steps you can take to address pay gaps:

1. Look for explanations in pay figures you report and analyse data thoroughly looking at efforts your business has already taken to address differences.
2. The government guidance suggests publishing an action plan with clear, measurable targets over a specific timeframe.
3. You could join the new Inclusion at Work panel which will advise on evidence-based actions employers can take and the new voluntary Inclusion Confident Scheme.
4. Continuous focus, determination and strong and consistent messaging driven by leadership will be needed to make changes.
5. Whilst positive discrimination is unlawful, you could take positive action to address challenges faced by some ethnic groups to help them overcome or minimise a disadvantage, have their different needs met or to participate in a particular activity.
6. Education and training across your business, transparent conversations and anonymous suggestion boxes can assist in creating better understanding of issues that employees from various backgrounds encounter and how challenges can be minimised.
7. Whilst it might be tempting to take prompt action to overthrow your current systems and policies, it is worth taking time to consider if tweaking the way you operate and regularly reviewing progress might be less disruptive and be more inclusive longer term.

What is the advantage of ethnicity pay gap reporting for my business?

The key advantage of collecting this data, as with any other data about your business is that you will learn more about what is happening at all levels of your business using objective figures.

If your data demonstrates that there are pay gaps, this may be symptomatic of a bigger problem of a non-inclusive culture and may also mean lower morale and so reduced engagement and productivity and less career progression within certain groups. None of these are good for your business and so awareness will give you the opportunity to see where your business is now and address issues of potential bias or inequality by understanding why the data shows what it does and what you can do to achieve goals you have for your business such as attracting diverse talent and retaining and developing employees.

Summary

Whilst it is not yet a legal requirement to report on ethnicity pay gaps, collecting this data and reporting on it at least internally will add value to your business. If you have awareness of any disparities, you can consider action to level the playing field and make all the staff working in your business as productive as possible making rewards fairer.

If you have any questions about ethnicity pay gap reporting, our employment lawyers can help.