Ethnicity pay gap reporting – will the government now act?

Ethnicity pay gap reporting – the story so far

The 2017 Conservative election manifesto included proposals for ethnicity pay reporting, as did the Labour manifesto. Theresa May’s government launched a consultation in 2018, which closed in January 2019, but neither it nor Boris Johnson’s administration has announced any further steps. Ethnicity pay reporting didn’t even warrant a mention in the Conservative manifesto for last December’s general election.

When asked earlier this year, the government responded there had been 300 responses to the 2018 consultation and that it would share the “next steps on [the consultation] in due course”.

Fast forward just a few months from that statement and the world is very different. The killing of George Floyd comes at a time when thousands of people have died from Covid-19, with a disproportionate number being from BAME groups. Ethnic minorities are also being harder hit by the Covid-19 recession and more likely to be employed in service jobs hit by retail/restaurant closures, which will potentially worsen ethnicity pay deficits. Will the Black Lives Matter movement finally prompt the government to act on an issue that might help to reduce inequality?

Impact of gender pay gap reporting

Regulations came into force in 2017 requiring organisations with 250 or more employees to publish (among other things) their gender pay gap - the median average pay of male and female members of staff - with the first reports submitted by April 2018. The requirement to publish gender pay gap reports in 2020 has been suspended due to Covid-19, although more than 5,000 employers have already reported.

It is difficult to find reliable data about the actual impact of gender pay gap reporting, but some reports claim that it has raised the level of women being recruited and promoted into more senior roles, while lowering overall bills by decelerating growth in men’s pay.

The case for change

Since gender pay gap reporting was introduced, there have been calls for a similar legislative regime to seek to address the ethnicity pay gap. In 2019, the Office for National Statistics (ONS) published analysis of ethnicity pay gaps in Britain using data from the Annual Population Survey.

This data showed, among other things, that those in the “Black African, Caribbean or Black British” and “Other ethnic group” categories earned on average 5% to 10% less than “White British” workers. The difference in median hourly pay between employees of white ethnicity and all those belonging to an ethnic minority group was largest in London, at 21.7%.

Problems with ethnicity pay gap reporting

The 2018 government consultation sought comments on how employers might report data. These included having a single pay-gap figure of “white vs non-white”, multiple pay gap figures for different BAME groups or publishing pay information by bands or quartiles (the approach put forward by Baroness McGregor-Smith in her 2017 report Race in the workplace).

The consultation also sought views on whether organisations should be required to mirror the requirements of the gender pay gap reporting system by using the same definitions and, for example, using the same six sets of statistics (e.g. mean gender pay gap in hourly pay, mean bonus gender pay gap and so on). As we commented at the time, there are difficulties in replicating the same approach.

The gender pay gap regulations require comparison of the average woman to the average man, but the size of those two groups might be dissimilar and some workplaces can be heavily gender-skewed. This can mean the gender gap may look good but fail to show what that workplace is really like for women. For example, in a workplace with 270 men and 30 women, the hourly rate of pay for women is calculated from a relatively small group of employees. This means that if one or two of the women were to be dismissed or hired, there could be a big impact on the overall pay gap.

One major issue with ethnicity pay reporting is that many employers are likely to have a small proportion of non-white employees, potentially resulting in a lack of meaningful data and large swings in the data from year to year. The government’s consultation acknowledged this and the fact that a headline pay-gap figure will not reflect overall BAME representation in an organisation.

Another difficulty is that some organisations do not hold ethnicity data for all of their staff. In March 2019, PwC published a report setting out that 75% of companies surveyed (from 80 companies) did not have sufficient data to analyse their ethnicity pay gap. Various HR and data privacy considerations arise when recording, storing and processing personal data relating to ethnic origin, on which organisations may need to consider taking legal advice.

Finally, there is an issue with the proposal for pay gaps to be published based on “non-white” compared to “white or white British”. This may assist with the problem of sample size outlined above but using such a basic binary distinction is unlikely to show the differences faced by discrete BAME groups - according to the ONS there are 18 ethnic classifications. For example, in the ONS report, Chinese workers were paid the most out of any ethnic group - including white employees - but would fall within the “non-white” group, potentially skewing the numbers.

‘Now is the time’

Some organisations are not waiting for the government to introduce legislation on ethnicity pay reporting and are already voluntarily publishing their data. Business in the Community (BITC) operates the Race Work Charter Survey, with participating organisations committing to capturing ethnicity data and publicising progress. The pledge does not explicitly require employers to report their ethnicity pay gaps, just report upon their progress to reduce them, but many big-name organisations have signed up and are voluntarily recording the relevant data.

Liberal Democrat MP Layla Moran has called for business groups and the Trades Union Congress to help with drafting legislation to require ethnicity pay reporting, and there is a petition on the UK Parliament website asking the Government to introduce mandatory reporting which at the time of writing had almost 85,000 signatures.

Conclusion

Gender pay gap reporting was enacted through regulations, a relatively quick and easy way of legislating, but the government would need to pass a new Act of Parliament to create any new ethnicity pay reporting scheme. This would be a cumbersome and time-consuming process, with Covid-19 and Brexit already swallowing up much of Parliament’s bandwidth. Ultimately, the government will have to decide whether this is something it wants to prioritise.

Clearly there are major problems with simply copying and pasting the approach of the gender pay gap regulations into the field of ethnicity, and a great deal more consideration is needed on the optimal approach. There is a growing consensus that something must be done, but as yet no agreement on what.

Find out more about our ethnicity pay gap reporting solution.