Ethnicity pay gap reporting: guidance for employers published

On 17 April 2023, the Government published its first official guidance for employers on how to measure, report on, and collect data on ethnicity pay.

There is a statutory requirement for UK employers with at least 250 employees to measure and report their gender pay gaps annually. While there is no corresponding legal requirement for employers to report ethnicity pay differences, many already do so and see ethnicity pay gap reporting as an important step in their diversity and inclusion efforts.

This note answers the key questions that schools are likely to have on the ethnicity pay gap reporting guidelines.

What is the ethnicity pay gap?

The ethnicity pay gap is the disparity in pay between white employees and ethnic minority employees. “Ethnic minority” is a generic term used in the UK to describe all ethnic groups other than those who identify as “white British.”

Is ethnicity pay gap reporting mandatory?

No, unlike gender pay gap reporting, ethnicity pay gap reporting is voluntary. 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.

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.

Why has the guidance been introduced?

This guidance was commissioned by the Government last year following its policy paper, “Inclusive Britain”. The Government stated in the paper that it would “support employers across the UK who want to publish their ethnicity pay gaps, much like they do for gender, with new guidance.”

The intention behind the guidance is to support employers with reporting and give them the tools to produce a consistent approach to measuring the pay differences between ethnic groups.

The guidance provides recommendations on:

• collecting employee’s ethnicity data;
• gathering payroll data;
• making pay calculations;
• analysing and understanding the results of the calculations; and
• developing an action plan to address any disparities.

Why is measuring the ethnicity pay gap important?

The guidance points out that the workforce in the UK is increasingly diverse but data indicates that there remain significant differences in earnings between ethnic groups. Some ethnic minority groups earn less on average per hour than white British employees, while others earn more.

By collecting and analysing ethnicity pay information, employers can identify disparities in average pay and begin to develop an action plan to address any differences.

What is covered in the guidance?

The guidance is divided into the following five sections:

• Introduction/Overview
• Understanding and reporting your data
• Collecting ethnicity data
• Preparing your payroll data
• Making your calculations

The full guidance can be accessed here.

Is measuring the ethnicity pay gap the same as measuring the gender pay gap?

The ethnicity pay gap reporting guidance mirrors the methodology used in gender pay gap reporting, but gathering and analysing ethnicity pay data is a more complex process. In part, this is because gender pay gap reporting requires a comparison between only two groups. In contrast, ethnicity pay gap reporting may involve many more groups, depending on the diversity of the workforce in a particular organisation.

Collecting data requires sensitivity and the guidance recommends that employers do so by asking employees to report their own ethnicity, and always include a “prefer not to say” option.

In order to make comparisons, the guidance suggests that the data gathered could be distilled into five aggregated categories. For example, the data could be grouped into: Asian; black; mixed; white; and other (alongside a sixth “prefer not to say” category).

How should pay disparities be addressed?

If an ethnicity pay gap is revealed, the guidance recommends that employers implement an action plan to reduce any pay disparities. The action plan should include clear, measurable targets and a time frame for achieving these.

While employers are encouraged to be ambitious, the guidance warns against setting a target for a 0% pay gap; such a goal is not realistic and fails to reflect the different factors that may contribute towards an ethnicity pay gap.

The guidance provides a specific focus on improving diversity of talent. This type of improvement can significantly reduce any pay disparity in the future.

What does this mean for schools?

Although ethnicity pay gap reporting is voluntary, schools should continue to promote diversity at every opportunity and consider carrying out an ethnicity pay gap analysis in order to understand whether there are any pay disparities. If a disparity is revealed, an action plan should be implemented to seek to address the disparity. Schools may also want to publish the results and any associated action plan. This transparency has the potential to improve employee engagement.

If schools are considering measuring their ethnicity pay gap, due to the complexities highlighted within the guidance, they should take legal advice before publishing any results and accompanying action plan.

If you have any queries on the guidance, or ethnicity pay reporting generally, please get in touch with Hannah Wilding.