Insight: New guidance for employers wanting to report on their ethnic pay gaps

In recent years, the UK government has come under pressure to introduce legislation to compel large employers, including those in the manufacturing sector, to report their ethnic pay gaps, as evidence suggests that black and ethnic minorities face multiple disadvantages in the workplace. Elaine Huttley, partner and manufacturing sector expert at law firm Irwin Mitchell shares more on the new guidance.

Last year, the government published a policy paper called Inclusive Britain, in which it rejected compulsory reporting and instead promised to support employers who want to voluntarily report their ethnic pay gap data. To this end, the government has now published new guidance to help employers ‘navigate the challenges associated with reporting’.

This guidance comes in five parts: introduction and overview, understanding and reporting data, collecting ethnicity data, preparing payroll data, and making calculations. The government’s aim is to develop a consistent, methodological approach to ethnicity pay reporting, so employers can identify and investigate disparities in the average pay between ethnic groups and develop an action plan to tackle these.

Much of this guidance mirrors the approach set out in the guidance for gender pay gap reporting. However, the government acknowledges that the scope of ethnicity pay reporting is ‘much more complex’ and recommends that employers have their calculations ‘checked [by] analysts’. This is 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

The government’s guidance on pay disparities encourages employers to go beyond simply looking at salaries. It suggests looking at underlying causes, taking action to address them and planning accordingly. These may include factors such as people from certain ethnic groups applying for lower paid roles or being less likely to have the qualifications for more senior positions.

Employers should also consider external factors, such as whether people from certain ethnic groups are aware of vacancies, or if they are given the same performance ratings and promotion opportunities as other groups. By examining their own internal processes and external factors, employers can take steps to reduce pay disparities.

Deciding on which ethnic groups to use

It is not recommended to divide your workforce into ‘whites’ and ‘BAME’. Instead, use the 2021 Census for England and Wales categories: White, mixed or multiple ethnic groups, Asian or Asian British, Black, Black British, Caribbean or African and ‘other ethnic groups’ and the detailed sub-categories that sit underneath these.

However, you may choose other categories if appropriate. Be aware that aggregating groups to the five larger ethnic groups may not provide a full picture. Present the ethnic groups as a list with an option to ‘prefer not to say’, or not answer at all.

Complying with data protection rules

When collecting and processing ethnic data, it is important to consider the GDPR. This type of data is classified as special category data and is subject to strict rules. It is necessary to inform staff why the data is being collected, how it will be used, how it will be kept safe, and the steps taken to ensure that no individual can be identified by the data published.

Depending on the purpose of the data, the government recommends a minimum category size of five to twenty employees for internal use, and fifty employees for public use. There is usually no need to restrict the ‘prefer not to say’ categories.

Deciding on whether it’s worth the effort

If you’re not already reporting on the ethnicity pay gap, it’s worth considering the potential benefits. ESG credentials are increasingly important, and it’s possible that the government may introduce legislation if change doesn’t happen quickly enough.