Ethnicity pay reporting

In October 2018 the UK government released its consultation paper ‘Ethnicity Pay reporting’ which sets out options and asks questions on what pay information employers should report and which employers should be expected to report. This has come about as a direct result of a key recommendation of the 2017 ‘Race in the Workplace’ report produced by Baroness McGregor-Smith. In 2016 she was tasked with examining workplace barriers faced by people from ethnic minorities and to consider what could be done to address these.

The UK government was persuaded that the case for ethnicity pay reporting had been made and it expected business to take this forward voluntarily. It also committed to monitoring progress and ‘stood ready to act if needed’. While acknowledging that these are complex and sensitive issues the government’s key social and economic reasons for supporting this initiative, set out in the consultation paper, are summarised below:

·      A government commitment to ‘ensuring that people from all walks of life have the opportunity to realise their potential’

·      Transparency is a vital step towards harnessing the power of a diverse workforce

·      Reporting ethnicity pay information enables employers to identify and then tackle barriers to creating a truly diverse workforce

·      The UK’s working population is increasingly diverse, both culturally and ethnically and there is no reason why the workforce in all organisations should not reflect the diversity of the communities in which they operate

·      Stronger action is needed to drive change

·      A consistent approach to reporting will allow organisations to benchmark against peers and also measure progress

·      Baroness McGregor-Smith’s report stated that equal participation and progression across ethnicities could be worth an additional ￡24 billion per annum to the UK’s economy.

The introduction of the gender pay gap (GPG) reporting requirements signalled a move towards greater transparency requirements for employers when it comes to their diverse talent. The consultation launched today is further evidence of this trend and will lead to a greater emphasis for employers in three areas: data quality, demonstrable progress and communication to internal and external stakeholders on their diversity record. 

While aiming to keep any approach as simple as possible to minimise the burden on employers, the paper makes clear that the drivers of disparities need to be identified. The consultation paper’s 11 questions, which are set out below, are really a reflection of the key challenges organisations will face:

·      Contextual factors: The McGregor-Smith review identified geography, age and gender as key factors, so these may impact any final reporting requirements:

o  Geography: With the ethnic minority working population concentrated in London, and certain regions, town and cities of the UK, regional pay variations may need to be taken into account.

o  Age: The ethnic minority working population is on average younger than the white working population and pay has a tendency to increase with age.

o  Gender: The gender pay gap across the ethnic minority working population differs to a greater or lesser extent than the gender pay gap across the white working population.

·      Current requirements: The paper acknowledges the existence of GPG requirements and welcomes views on the extent to which these should be mirrored for ethnicity pay. There must also be lessons that can be learned from the first GPG round.

·      Ethnicity classification: The 2011 ONS census set out 18 detailed ethnic groups but even within these there will be unique cultural differences which could be defined. Amongst organisations in the UK no one standard set of ethnicity classifications are used or universally applied. The McGregor-Smith review asked the FTSE 100 to provide a breakdown of the ethnicity of their workforces. While three-quarters responded, only 50% were able to provide data.

·      Reportable statistics: The paper presents a number of options for reporting average hourly earnings, including mirroring the current GPG single figure, reporting by multiple ethic minority groups and whether to report by pay bands (as recommended by McGregor-Smith) or by quartiles.

·      Reporting entities: As with GPG reporting, the government believes that with a risk of imposing too great a burden on business only employers with 250 or more employees should be expected to publish ethnicity pay data, although Baroness McGregor-Smith’s original recommendation was a 50 employee threshold, our judgement is that this risks imposing too great a burden on business. This would cover approximately 10,000 employers in Great Britain (Northern Ireland would be excluded).

·      Self-reported ethnicity: Most organisations asked by the McGregor-Smith review stated that they did collect data on ethnicity but the key issue raised was non-disclosure and the challenge in persuading individuals to provide that data.

Considering the contextual information shared in the consultation paper the challenges of data quality, demonstrable progress and communication are likely to be even greater for ethnicity reporting than that for GPG reporting. As a result organisations will need to consider how they can prepare for these requirements much sooner than was the case with GPG. Introducing mandatory requirement for businesses would require primary legislation (secondary regulations for the public sector) and any requirements will require further testing to determine the detail of the regulations.

Consultation paper questions

1.      What are the main benefits for employers in reporting their ethnicity pay information?

2.      What type of ethnicity pay information should be reported that would not place undue burdens on business but allow meaningful action to be taken?

3.      What supporting or contextual data (if any) should be disclosed to help ensure ethnicity reporting provides a true and fair picture?

4.      Should an employer that identifies disparities in their ethnicity pay in their workforce be required to publish an action plan for addressing these disparities?

5.      Do you currently collect data on ethnicity at your workplace?

a.      If yes, do you use standard ethnicity classifications for reporting? If so, which ones?

6.      What do you think are the most effective approaches for employers to improve employee self-reporting or declaration rates?

7.      How should self-reporting or non-disclosure rates be reflected in the information reported by employers?

8.      For a consistent approach to ethnicity pay reporting across companies, should a standardised approach to classifications of ethnicity be used? What would be the costs to your organisation?

9.      Please outline steps that should be taken to preserve confidentiality of individuals.

10.  What size of employer (or employee threshold) should be within scope for mandatory ethnicity pay reporting?

11.  What support measures do you think would be useful for employers?