New guidance for UK ethnicity reporting: What employers need to know

After a long period of silence, the Government published on the 17th of April, 2023 new guidance for employers on ethnicity pay gap reporting and positive action to take in the workplace. The guide, issued by the Race Disparity Unit, Equality Hub and the Department for Business and Trade, is part of an update on the Government’s progress with its Inclusive Britain action plan. The aim of the guidance is to develop a consistent, methodological approach to ethnicity pay gap reporting, which can then lead to meaningful action.

Will ethnicity pay gap reporting be mandatory or voluntary?

Unlike the gender pay gap, there is currently no legal requirement for UK businesses to disclose their ethnicity pay data. In 2017, a government commissioned review examined the progression of ethnic minority groups in the UK labour market with a key recommendation to introduce mandatory ethnicity pay gap reporting for organisations with 50 or more employees. For clarification, the pay gap is not the same as unequal pay for undertaking the same work or work of equal value, which is unlawful, but a comparison of average pay gaps irrespective of legitimate compensable factors such as job grade, responsibilities, skills, and experience.

Initially the UK Government rejected the recommendation, stating that it preferred a voluntary, non-legislative approach. However, in 2018 the Department for Business, Energy and Industrial Strategy (BEIS) launched a consultation in which it recognised that, “it is time to move to mandatory ethnicity pay reporting.” That consultation closed in January 2019 and no government response was published, therefore these new guidelines are in effect the first response since.

Ethnicity pay gaps in the UK: What the data shows

With no mandatory reporting or data collection requirement, the only national data source we can reference is the ONS Ethnicity Pay Gap data, with the last available data set being from 2019. This study examined pay for the different ethnic groups in England, Scotland and Wales. In this study, the pay gap is calculated as the difference between the average hourly earnings of white British and other ethnic groups as a proportion of average hourly earnings of white British earnings. A positive pay gap indicates an ethnic group is paid less than those employees categorized as white British, whilst conversely a negative pay gap indicates an ethnic group is paid higher.

The data showed significant disparities between the averages paid to white British workers and those from other ethnic backgrounds. The findings based on comparisons using the 10-category ethnicity breakdown were complex with three ethnic groups: Chinese, Indian and Mixed/Multiple ethnic group which were paid higher on average than white British as shown below.

White Other 5%
Mixed or Multiple ethnic groups -2.5%
Indian -12%
Pakistani 16.9%
Bangladeshi 20.2%
Chinese -30.9%
Any other asian 4%
Black African, Caribbean, or Black British 9.2%
Other ethnic group 9.2%

The ONS study also modelled different factors that may affect pay, for example, certain ethnic groups may be more inclined to settle in certain areas of the country and pay may differ between regions. One interesting observation was the difference in pay between UK born and non-UK born employees. By comparing those who were born in the UK and those who were not, it may provide insight on what the effects on pay are for those with a UK education and for those whom English is their first language.

Preparing for the future of ethnicity pay gap reporting

The new guidance (including the methodology for the calculations) mirrors the approach set out in the regulations for gender pay gap reporting, which should help businesses avoid having to run separate processes to collect the pay data required to run the recommended calculations. It also provides updated guidance on collecting ethnicity data, which has proven to be more complex than gender data thus far. This guidance recommends using the Government Statistical Service (GSS) harmonised standards for collecting someone’s ethnicity data. The other positive for employers wishing to be proactive is that we might expect these guidelines to shape any future mandatory legislation, so gathering data and starting reporting now makes more sense than ever.

However, despite all this it is unlikely we will see a significant uptick in voluntary reporting. Analysis of data from BITC found that it could take until 2075 for companies currently capturing their ethnicity pay gap data to publish what their pay gap is. And the analysis also found that unless the government makes ethnicity pay gap reporting mandatory, it will take 30 years (2051) for businesses to even know what their pay gap is.

Consistently we have seen that employers only respond once mandated, and even when that happens progress is slow. With six years of mandatory gender pay gap reporting in the UK complete, real progress has been elusive and unfortunately, average pay gaps have not closed despite many leading employers taking positive action and making gains.

Do we therefore set store on increasing stakeholder pressure to fulfil ESG strategy commitments and increasing demands from employees for pay transparency as the drivers for action? Ultimately, we need to analyze pay gaps to gain critical insights of where we have come from and identify where we want to go, then we can set better goals and actions to improve pay progression for all.