Quick Hits

• Ethnicity pay gap reporting is voluntary in the UK.
• The UK guidance is intended “to develop a consistent, methodological approach to ethnicity pay reporting.”
• Clearly defining categories of ethnic groups is an important task for employers that voluntarily report on their ethnicity pay gap.

The UK government recently published guidance on ethnicity pay gap reporting for employers. The guidance includes information on how to:

• “collect employees’ ethnicity data”
• “gather the required payroll data for ethnicity pay calculations”
• “make ethnicity pay calculations”
• “analyse and understand the results of these calculations”
• “develop an action plan to address any identified disparities”

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 United Kingdom to describe all ethnic groups other than those who identify as “white British.”

Why is this being introduced?

In 2018 the UK government launched a consultation on a possible new law into mandatory ethnicity pay gap reporting. The purpose of the consultation was to seek feedback on what information employers would be required to publish as part of their ethnicity pay gap report. The consultation closed in January 2019, and no response has yet been published.

In the aftermath of the COVID-19 pandemic when many government initiatives were put on hold and following the global civil rights movement catalysed by the murder of George Floyd in the United States, the UK government published a policy paper in March 2022 titled “Inclusive Britain: government response to the Commission on Race and Ethnic Disparities.” Included in the policy paper were “a raft of measures” set to be introduced to put the UK “on a course towards a more inclusive and integrated society.” One of the objectives of the policy paper was to “[p]romote fair pay,” and in doing so highlighted that employers that are transparent about exactly how they treat all employees fairly, may have greater trust from their workforce. 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.”

Why is it not mandatory?

Employers that meet the threshold for gender pay gap compliance are required to annually report a number of data points relating to salaries and benefits of their male and female employees. Employers that fail to report the data can suffer reputational damage and may face enforcement action from the Equality and Human Rights Commission.

While the government acknowledges in the guidance that much of the calculation methodology mirrors that of gender pay, ethnicity pay gap reporting is described by the government as “just one type of tool to assist employers in creating a fairer workplace.”

The guidance has been published as promised, but there is currently no legislative agenda to compel companies to participate—it is entirely voluntary. The introduction to the guidance explains that: “The aim of this guidance is to develop a consistent, methodological approach to ethnicity pay reporting, which can then lead to meaningful action, while remaining proportionate and without adding undue burdens on business.”

Potential burdens on business

Under the gender pay gap reporting regulations, the required calculations only include data relating to two gender identities, male and female. Many employers hold this data about their employees as a matter of routine and as such, the data collection and grouping is usually quite straightforward.

Categories of ethnicity may be difficult to define in order to compile data that reveals meaningful information. Employees must be categorised correctly in appropriately defined groups, but the size and scope of a group might affect the data analysis and assessment, potentially presenting a less-than-accurate picture of comparative pay within a company.

For example, if one company decides to group one set of employees in a group labelled “Asian,” this is a relatively broad term and may include employees with ethnic backgrounds from more than forty countries. At another company, all the employees in the group categorised as “Asian” may all be from one country or region, such as India or South Asia.

Further, due to the nature of the data being collected—as ethnic minorities are, by definition, a minority—small data groups are inevitable across many sectors. As with any statistical measurement, this can lead to issues with analysis as the sample may not adequately represent the actual distribution of data in the population.

Employers usually already hold the gender data of their staff, but not usually ethnicity data. Ethnicity is “special category” data under the UK General Data Protection Regulation, and there are restrictions on how to collect, store, and use such data.

What is covered in the guidance?

The guidance acknowledges some of the difficulties referenced above and encourages employers to “diagnose” any identified disparities to “assess whether there are reasonable explanations for any disparities or if there are any areas of concern.”

In relation to data collection, there is a whole section of guidance titled “Collecting ethnicity data.” This includes advice on ensuring data collection is handled sensitively and in accordance with data protection laws, and recommends using questions and ethnicity categories from the most recent censuses in England & Wales and Scotland.

The guidance has been published as five individual webpages with the following titles:

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

What Does This Mean for Employers?

Although reporting pay data based on ethnic categories is not mandatory, many employers may review the guidance and decide that they would like to carry out ethnicity pay gap analysis and publish their reports. Once an employer has decided to proceed, it may be useful to hold data sensitivity and security training for those individuals who will be involved in data collection.

Training the employees who will be carrying out the statistical calculations and producing the report may be worthwhile if this is not a typical part of their role. Alternatively, this can be outsourced.

Once the report is set for publication, it may be helpful to first disclose it internally to employees and host a meeting or discussion to ensure everyone understands the implications of the data analysis.

Ellie Burston is a second-year trainee solicitor in the London office of Ogletree Deakins and contributed to this article.