- Mandatory ethnicity pay gap reporting will be introduced in the future, along with the Equality (Race and Disability) Bill.
- Ethnicity data is a special category under GDPR, so employers must state what it will be used for and how it will be stored.
- Employers can use ethnicity pay data to identify wage disparities and opportunities or recruitment biases.
The King’s Speech in July confirmed that the government will introduce mandatory ethnicity pay gap reporting for employers with more than 250 employees through the draft Equality (Race and Disability) Bill. This proposed bill will also enshrine contractual equal pay for ethnic minorities and disabled employees through law and educate around what a pay gap is, because it does not always signify an equal pay issue.
Employers may, therefore, want to make a head start and start exploring how this will affect them in order to make plans.
Understanding ethnicity pay
An ethnicity pay gap is the difference between ethnic groups’ average earnings across an organisation. Some employers have started to publish their ethnicity pay data with their gender pay data, which is mandatory to report on for those with more than 250 employees.
While the previous government published voluntary ethnicity pay reporting guidance in July 2023, the Chartered Institute of Personnel and Development (CIPD) has called on large employers to voluntarily compile ethnicity pay data, develop action plans and tackle workplace inequalities since 2021.
Lutfur Ali, senior policy and practice adviser for equity, diversity and inclusion at the CIPD, explains: “Ethnicity pay reporting involves analysing and disclosing pay disparities between different ethnic groups within the workforce. It will not only help with potential legal compliance, but also enhance organisational reputation, employee satisfaction and better business outcomes.”
The government is also considering mandatory employer action plan publication, as well as the right to dual discrimination, where gender and ethnicity pay discrimination claims can be submitted together. Specific requirements and timelines are yet to be determined.
Becoming mandatory
When ethnicity pay reporting becomes mandatory, employers will be required to collect, analyse and publicly publish the data. Organisations can prepare by reviewing existing processes, seeking guidance, and developing systems to capture and categorise data.
While gender pay gap reporting involves publishing mean, median, hourly pay, bonus and quartile data, this may not be able to be applied directly to ethnicity pay. For example, the data employers may have already been collected, but might not be defined in the same way as ethnicity groups set out under any potential future government guidance.
Melissa Blissett, senior consultant – pay gap analytics at Barnett Waddingham, says: “Employers should set out a longer-term plan and link to sustainability, and risk and talent management. They should set out a timeframe for conducting listening projects, as data only offers one side and there could be a wider context, as well as insights from staff.”
Data collecting considerations
Employees cannot be compelled to disclose their ethnicity, so voluntary disclosure could be encouraged through internal communications. Employers should ensure they approach ethnicity and pay data collection with sensitivity and transparency. Ethnicity is a special category data under General Data Protection Rules (GDPR), so organisations must ensure their employees are aware of how it will be used and kept secure.
Darain Faraz, co-founder of People Like Us, campaigner for ethnicity pay gap reporting legislation, says: “Employers should explain the purpose of collection, obtain employee consent and anonymise where possible. The specific requirements are still unknown, so staying informed and adaptable is important.”
Deciding on the most appropriate ethnicity categories is key, as well as ensuring all employees are comfortable with these. The Office for National Statistics’ Census offers five ethnicity categories, or a more detailed 18-category breakdown.
For data to be robust, at least 70% of employees should disclose their ethnicity, says Paul Modley, managing director of diversity, equity, inclusion and belonging at AMS. “Establishing trust and understanding is key to encourage employees to submit data, which should be stored on HR systems for confidentiality and anonymity,” he explains. “It is important to work with data privacy and legal staff on this. Employers could conduct a communications and engagement programme utilising employee resource group leads to support with the messaging.”
Ali adds: “Support and training for line managers for any uncertainties about language, among other things, should be a key consideration.”
Ethnicity pay reviews
Organisations should think about what they want to know from a pay review. They could carry out a full pay audit, or take ethnicity pay gap figures and segment these to look for outliers within certain groups, such as roles, departments or tenure.
Employers may also wish to consider working with an external consultancy for their first ethnicity pay review, to then embed into existing pay review processes.
“Employers should gather accurate data on employees’ ethnicity and pay through surveys and HR records, ensuring data protection regulations compliance, before analysing to identify pay disparities between ethnic groups,” says Faraz. “Involving a diverse team ensures fairness. Employers should then develop an action plan to address any gaps.”
Tamsin Sridhara, global lead pay and career equity at Willis Towers Watson, adds: “Challenges around conducting ethnicity pay analyses are availability of ethnicity data and its consistency when using self-identification, and that running white versus non-white analyses hides different patterns across ethnicities. Additionally, smaller sample sizes lead to year-on-year volatility and higher variance.”
Using data
Ethnicity pay data can be used to identify disparities between different ethnic groups, underlying unequal progression or recruitment biases. It can also be used to benchmark against others, and can be used as part of an organisational equality, diversity and inclusion strategy to create a more inclusive workplace. Employers should also take care to ensure current and potential employees interpret the data correctly.
“It enables organisations to track ethnicity pay gap information over time. It is likely that they will need at least three years of data before drawing any conclusions and trends,” says Modley.
While there is no current mandatory requirements or guidance, employers should ensure their approach to conducting pay reviews is sensitive, considerate and thorough.
