Ethnicity pay gap reporting will not be mandatory

Voluntary guidance will instead be published “this summer”.

Ethnicity pay gap reporting: the story so far

The story begins nearly 5 years ago. In the 2017 general election, Theresa May’s manifesto contained a pledge to require all large employers to publish their ethnicity pay gaps. A consultation on ethnicity pay gap reporting was published in October 2018 which closed in January 2019. During that time, there was another general election, although future prime minister Boris Johnson’s manifesto omitted any mention of ethnicity pay gap reporting.

In the years that followed, the government said it was still considering the information provided during the consultation and would respond “in due course”. Last year, there was a parliamentary debate on the subject but still the government refused to clarify its position.

Finally, and just as we predicted, the government has decided to follow the recommendation of the Commission on Racial and Ethnic Disparity and will not make ethnicity pay gap reporting mandatory.

What has the government said about mandatory ethnicity pay gap reporting?

The government recently published a long response to the report by the Commission on Racial and Ethnic Disparity. Buried in the middle were a few paragraphs on ethnicity pay gap reporting.

The government’s view is that there are “significant obstacles” with an ethnicity pay gap reporting mechanism and that it does not want to impose additional burdens on employers “as they recover from the pandemic”.

The Department for Business, Energy and Industrial Strategy (BEIS) will instead publish guidance “in summer 2022” that will help employers who want to report their ethnicity pay gaps voluntarily. The government says it will give employers the tools to understand and tackle pay gaps within their organisations and to build trust with employees.

The government hasn’t said whether it will help employers with publishing their ethnicity pay gaps. A fundamental part of the gender pay gap reporting regime is that all pay gap information is available in one place: the government website. The government has yet to say whether or not it will expand the website to be able to accommodate ethnicity pay gaps. If a voluntary ethnicity pay gap reporting scheme is to be successful, it should do this.

Why has the government decided against mandatory ethnicity pay gap reporting?

We’ve written before about the problems with ethnicity pay gap reporting, and the government has identified the same issues and explains that its guidance will help employers to deal with them.

• Response rates. Employers tend to have excellent data on the gender of their workforce, but much less good ethnicity data. Incomplete data can cause big problems in the interpretation of any ethnicity pay gaps. The government claims that its guidance will help employers mitigate this problem.
• Binary vs multiple categories. Reporting a binary “white vs non-white” gap can give a misleading impression, since different ethnicities face different obstacles in the labour market. The government says that it will encourage employers to use specific ethnic groups when calculating ethnicity pay gaps, rather than broader categories.
• Geography. Some areas of the country are more ethnically diverse than others. The government says that its guidance will assist those employers in parts of the country with very small ethnic minority populations, so that they can produce meaningful ethnicity pay gap reporting statistics.

What should employers be doing about ethnicity pay gap reporting?

Employers can take ethnicity pay gap reporting off the list of things they will have to do, but should still keep it on the list of things they ought do.

This is because many employers are calculating and reporting their gaps already. Legislation isn’t the motivation behind this. Employers are reporting because of increasing demand by customers and potential candidates. Greater transparency is becoming the norm.

Employers that are required to report their gender pay gaps will already be doing most of the work required for ethnicity pay gap reporting. A big part of gender pay gap reporting is collating the data and checking it. With a solid dataset, an employer can carry out an ethnicity pay gap analysis without too much extra work (although interpreting and understanding the results can take longer).

Moreover, the government’s decision does not mean that race is not a big issue in the workplace. Most employers wish to demonstrate that they are anti-racist, and that they have workplaces where anyone can succeed. Voluntarily reporting ethnicity pay gaps can be a useful way of demonstrating this.

The guidance is set to be published “this summer”, which could mean any time from next month to late September; the government takes a fairly relaxed approach to the seasons. Once the guidance is published, employers should start calculating their ethnicity pay gaps. 

Find out more about our ethnicity pay gap reporting solution.