The Government has recently published guidance for employers on how to measure, report on and address any ethnicity pay differences within their workforce.

This is the first government guidance to set out a consistent approach to measuring pay differences between ethnic groups and came about following the Government’s policy paper in March 2022 “Inclusive Britain”. This blog gives an overview of the main points for employers to be mindful of when considering voluntarily reporting on ethnicity pay gaps.

In its policy paper the Government confirmed that it did not want to impose any new reporting burdens on businesses post-pandemic. Ethnic pay reporting (“EPR”) will not therefore be mandatory, with the Government wishing instead to support employers with voluntary reporting.

EPR is measuring the difference between ethnic groups’ average earnings across an organisation/the labour market as a whole over a period of time, regardless of role or seniority. It is not a like-for-like comparison of employees of different ethnicities as this would be an equal pay calculation rather than a pay gap calculation.

The report outlines that the key difficulty with EPR compared to gender pay reporting is the number of different ethnic groups that may form part of a workforce. This complexity means that employers are advised to carefully scrutinise and explore the underlying causes of pay disparities and, where pay differences are noted, further analysis is recommended to investigate if this is a result of discrimination or not.

Importantly, where there are discrepancies, the employer should set out clear, measurable targets that they will commit to achieve with a chosen timeframe. Employers are advised not to set targets of a zero percentage gap as this does not take into account the complexity of pay gaps and why they arise.

Collecting ethnicity data

When collecting ethnicity data the first thing to be mindful of is the composition of the workforce. The guidance suggests that a broad category of employees be analysed, including overseas workers and international jobs, part-time and job-sharing employees, and employees on leave, amongst others. The guidance notes that not all employers will have an existing record of employees’ ethnicity so the preferred route for obtaining the relevant data is by asking employees to report their own ethnicity.  But there should always be an option for employee to opt-out of answering if they so wish. It is worth flagging that the Information Commissioner’s Office regards employee’s ethnicity as special category data under GDPR legislation and there are therefore additional legal requirements to follow in relation to the handling of any information disclosed.

Preparing your payroll data

Once ethnicity data has been obtained, employers will need to gather the specific payroll data for those employees to calculate the ethnicity pay figures. There are key considerations to mindful of in relation to running the calculations to ensure that the same values are being compared - this includes ensuring pay periods are the same (i.e. both monthly pay figures) and comparing those on basic pay or those with an hourly rate of pay. The guidance provides a set of five tasks which sets out a step by step guide to gather specific data from payroll on each relevant employee. The five steps are: (1) make a list of employees and their ethnicity; (2) add ordinary pay; (3) add bonus pay; (4) add weekly working hours; and (5) work out each employees’ hourly pay.

Making your calculations

When undertaking the calculations, the key aspects to consider are ensuring: (1) a well-rounded understanding of any disparities (such as looking at the  mean (average) ethnicity pay gap using hourly pay); (2) looking at bonus pay gaps especially for those where the bonus makes up a large proportion of employee pay; (3) choosing the ethnic groups to analyse and the confidentiality in respect of this (for example if there are less than 50 employees in a particular ethnic group an employee should aggregate with another or not publish the results); (4) choosing whether to publish the results – this is not legally required; (5) producing the calculations and the guidance provides a range of explanations as to how data can be produced; and most importantly (6) understanding the figures to know what a positive or negative percentage figures means in respect of the calculations.

Understanding your pay calculation results

Employers should endeavour to diagnose the cause of any identified disparities within their organisation and this can be through looking at internal factors (such as employer recruitment practices) and external factors (e.g. the location of the employer and the different local representation of ethnic groups).

There are key questions employers should consider in order to understand any gap, including that some ethnic groups may be more likely to be recruited into lower paid roles, whether there an imbalance in individuals from different ethnicities applying for and achieving promotions and whether people from certain ethnic groups get ‘stuck’ at certain levels within the organisation.

Employers should check if there is a pattern and should not rely on any single calculation but rather run further analysis of ethnic categories for different parts of the organisation (such as with reference to job roles, locations, permanent/ temporary, full time/part time).

Looking ahead

As part of this guidance, the Government confirmed that it is launching an Inclusion at Work panel in Spring 2024 which will develop and disseminate advice on evidence-based actions employers can take to improve inclusion and fairness in the workplace. You can keep an eye on updates for this here.

Meantime, this guidance is a helpful step for employers to begin considering the calculation and reporting of their ethnicity pay gap. If you have any questions with regards to the guidance or if your organisation is considering preparing and reporting on their ethnic pay gap and requires assistance, please do get in touch and we would be happy to assist.

Related News, Insights & Events