Government’s Ethnicity pay gap reporting guidance published

Is the reporting mandatory?

No, the Government was clear in the “Inclusive Britain” paper that mandatory ethnicity pay gap reporting would not be introduced.

There are a number of factors which make it more difficult for employers to accurately analyse ethnicity pay gaps and compare these disparities with other businesses. This type of reporting is more intricate than that of gender gap pay reporting partly because of the large variety of ethnicities in the workforce and the lack of information about employee ethnicity in many organisations.

Although many have continued to advocate for mandatory reporting, the Government position has not changed as it states this is not the most appropriate tool for every type of employer.

Reporting method

The guidance explains how employers can:

1. Collect employees’ ethnicity data.
2. Gather the required payroll data for ethnicity pay calculations.
3. Make ethnicity pay calculations.
4. Analyse and understand the results of these calculations.
5. Develop an action plan to address any identified disparities.

The guidance also includes advice on how to consider data issues such as confidentiality, aggregating ethnic groups and the location of employees.

1. Small groups

When conducting the pay gap analysis, the guidance recommends that employers place a limit on the minimum size of a group. By ensuring that groups are appropriately sized, this will ensure the data collected is more statistically robust and reduces the risk of identifying individuals.

The guidance suggests two different group thresholds, depending upon whether reports are to be published internally or externally:

• For internal reporting, a minimum category size of between 5 and 20 employees is recommended.
• For external reporting, the guidance recommends that a minimum category size of 50 employees should be used.

2. Binary reporting

The guidance “strongly discourages” binary reporting between either:

• White and all other ethnic minorities combined; and
• White British and ethnic minorities.

Although the guidance allows for employers to total data across five broad ethnic groups if there are confidentiality concerns, it is recommended that employers should try to show as many different ethnic groups as possible. In practice, the guidance states that this would mean conducting 10 calculations each for the mean and median pay gap calculations based on the five groups and 171 calculations each for the mean and median pay gap calculations based on the detailed ethnicity classifications used in the Census.

3. Developing the action plan

When analysing the results of the calculations, there is a particular emphasis on the importance of taking an evidence-based approach towards any necessary actions.

The guidance advises that when reporting their ethnicity pay gaps, employers should also consider a supporting narrative that includes:

• Explanations for each of the pay figures in the report.
• A summary of why the employer believes any pay disparities exist, based on close analysis of the data and broader factors.
• Wider workforce statistics.
• The efforts the organisation has already taken to understand and address any pay disparities.

Implementing the guidance in your workforce

In the immediate term, many employers may find they do not have enough employee data to enable them to produce a meaningful ethnicity pay gap report. Therefore, employers may wish to initially focus on collecting this data and encouraging employees to participate in workforce surveys. Don’t forget that an employee’s ethnicity is regarded as “special category” data for data protection purposes and there is guidance on the Information Commissioner’s Office website about how to collect such data lawfully.

Given the ongoing calls for mandatory reporting, employers may need to keep in consideration that the voluntary reporting position may change in the future. The Labour party has repeated its commitment to make ethnicity pay gap reporting mandatory for employers with 250 or more employees, if it forms the Government after the next general election. Therefore, it would be wise for employers to fully review this guidance and consider what measures they can implement to ensure they are in the best position to provide a satisfactory ethnicity pay gap report in the future.