Ethnicity pay reporting — guidance published

The government published on 17 April 2023 its long-awaited guidance on ethnicity pay reporting.

In February 2022, the Women and Equalities Committee called on the government to make ethnicity pay gap reporting mandatory. This was a first step to addressing pay disparities between employees from different ethnic backgrounds. Despite this, on 17 March 2022, the government confirmed that it will not mandate ethnicity pay gap reporting but committed to “support employers across the UK who want to publish their ethnicity pay gaps”. This “support” was by the introduction of guidance.

Organisations will be aware that it is a statutory requirement for employers with at least 250 employees to report gender pay gaps. While ethnicity pay reporting is voluntary the government guidance will provide organisations with information to measure pay differences.

The guidance explains how organisations can report on ethnicity pay and in particular how to:

• collect 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

The purpose of the guidance is to allow organisations to develop a consistent, methodological approach to ethnicity pay reporting.

The guidance is very similar to the approach set out in the gender pay gap reporting guidance, which should assist organisations to avoid having to run different processes to collect pay data for both sets of calculations.

Ethnicity pay reporting is, however, much more complex than gender pay reporting, which is one of the reasons that the government did not make this requirement mandatory. While gender pay analysis only involves a comparison between 2 groups, ethnicity pay analysis can potentially involve many more ethnic groups, depending on how ethnically diverse a workforce is, how it is monitored and classified.

Organisations may also have to consider how best to combine different ethnic groups to ensure their results are reliable.

Organisations should analyse the reasons for any pay disparities. There could be sound reasons why there are variations in pay across ethnic groups and therefore it is recommended that organisations understand the real causes of the disparity, if there are any, and address any issues.

Diversity and inclusion is still firmly on the agenda and ethnicity pay gap reporting is an effective way of demonstrating a culture of inclusivity. If the exercise of gathering the data highlights issues then this provides organisations with the opportunity to focus on, explain and address them going forward.