Government publishes guidance on voluntary ethnicity pay reporting

On 17 April 2023, the Government released guidance for employers on how to measure, report and address any ethnicity pay differences within the workplace (see Government Guidance here). This guidance was published as a part of the Government’s action plan for an “Inclusive Britain” (see press release here).

According to the Office of National Statistics, minority ethnic groups continue to earn less than White British employees and ethnicity pay disparity is recorded as being larger for men than women. The ethnicity pay gap in London was recorded to be the largest within the UK at 23.8% (see ONS data here).

The government published a consultation on mandatory ethnicity pay reporting in 2018, which closed in January 2019. More than four years later, the government is yet to publish its response to the consultation and given the time that has since passed, it seems unlikely now that it will. Despite calls from the Women and Equalities Committee and the CIPD for mandatory ethnicity pay gap reporting for large employers to be introduced by April 2023, this has not happened and the latest guidance is therefore only relevant to those organisations who voluntarily report on ethnicity pay.

The law

Under the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, employers that employ at least 250 employees are legally required to measure and report gender pay gaps. However, there is no legal requirement for employers to do the same for ethnicity pay reporting and so employers only measure and report this on a voluntary basis. A 2020 study by PwC found that, in a sample of just over 100 employers who collectively employed over 1 million employees in the UK, 67% collected ethnicity data (up from 53% in 2018). Of those, 23% calculated their ethnicity pay gap (up from 5% in 2018) and 40% of those employers that calculated their gap had voluntarily published that data (see PwC press release here).

The equal pay provisions under the Equality Act 2010 (“EqA 2010”) make it unlawful for an employer to discriminate between men and women in relation to the terms of their contracts of employment by implying a ‘sex equality clause’ into every contract of employment (see section 66 EqA 2010).

The equal pay provisions do not apply where the pay disparity is attributed to other protected characteristics, including race. Claimants complaining of unequal pay due to their ethnicity would therefore have to bring a direct race discrimination claim under s 13 EqA 2010. Bringing a discrimination claim (as opposed to an equal pay claim) means, for example, that the Tribunal does not have the power to modify contractual terms or insert an equality clause; s70(1) EqA 2010. Equal pay claims also have longer time limits than discrimination claims. Whereas the time limit for bringing a discrimination claim is 3 months from the last act complained of, the time limit for equal pay claims is generally 6 months from the last day of the employment under the contract in respect of which the equality clause is alleged to operate.

The guidance

Although ethnicity pay reporting is currently voluntary, the Government nonetheless issued guidance on the matter to ensure that there is a consistent, methodological approach to reporting and to ensure that meaningful action can be taken by employers. Much of the guidance mirrors the approach set out in the guidance for gender pay gap reporting. However the Government acknowledges that ethnicity pay reporting is far more complex than gender pay gap reporting, given that gender pay analysis only involves a comparison between two groups, whereas ethnicity could involve many more comparators depending on how diverse the workforce is.

The guidance defines the ethnicity pay gap as a “measure of the difference between ethnic groups’ average earnings across an organisation or 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”. This definition differs from how equal pay is defined under the EqA 2010, as equal pay claims require the Claimant to be employed on ‘like work’, ‘work rated as equivalent’ or ‘work of equal value’ to the comparator; see section 65(1) EqA 2010.

Importance of ethnicity pay reporting

As with gender pay disparity, there exist various causes behind ethnicity pay disparity, and in the same way that a gender pay gap does not necessarily mean that there is an equal pay problem in an organisation, the fact that there may be an ethnic pay disparity does not necessarily mean that employers are paying those of particular ethnicities less because of their ethnicity. For example, it might be that a particular ethnic group is given lower pay because that group disproportionately applies for lower paid, more junior positions in an organisation. It might also be because the employer does not provide adequate opportunities for certain ethnic groups to progress into more senior positions. The guidance itself notes that employers should consider adopting other methodologies (e.g. staff surveys, data on recruitment and progression) to identify and understand the underlying causes behind pay disparity.

As set out above, identifying a pay gap is not the same as identifying unequal pay. The guidance notes that even if the employer has a fair pay and reward policy, and even if it has equal pay, there could still be a pay gap. An example provided in the guidance is as follows:

“[A] company has 5 pay bands with equal numbers of employees in each. At each pay band, employees of all ethnicities doing equal work, or work of equal value, are paid the same. This means the employer has equal pay. However, a higher proportion of black and Asian employees are in the lowest pay bands, and a higher proportion of white British employees are in the highest pay bands. This means that the average hourly pay for black and Asian employees is lower than the average hourly pay for white British employees. As such, the employer would have a pay gap, despite having equal pay.”

Whether complying with the government guidance results in a more inclusive workplace will largely depend on what additional actions the employer intends to take in light of any pay disparities recorded within the workplace and how the employer measures success. The Government has in the past published guidance on 1 December 2017 on actions employers could consider adopting to close the gender pay gap, some of which could also potentially assist employers wishing to close the ethnicity pay gap (see Guidance here). Adopting the examples set out in the 2017 guidance, employers could consider adopting the following strategies:

-Including more ethnic minorities in shortlists for recruitment and promotions (provided that these are qualified candidates);

-Using skill-based assessment tasks in recruitment;

-Using structured interviews for recruitment and promotions (e.gg asking the exact same questions to all candidates in a pre-determined order and format, grading the responses using a specified criteria) to reduce the risk of unconscious bias;

-Providing candidates with salary ranges when asking them to negotiate their salary;

-Adopting transparency to promotion, pay and reward processes to make decision-making more objective; and

-Appointing diversity managers and/or diversity task forces within the workplace. For example, a diversity manager could be tasked with monitoring talent management processes and diversity within the organisation and assisting the employer with reducing biased decisions in recruitment and promotion.

What to take away

As matters stand, the Government does not appear to intend to legislate for ethnicity pay reporting to become mandatory. The Government notes that ethnicity pay gap reporting is just one tool to assist employers in creating a fairer workplace and that this might not be the most appropriate tool for every type of employer to ensure fairness within the workplace (see House of Commons Women and Equalities Committee report here).

In the absence of mandatory reporting requirements, many employers are choosing not to collect ethnicity data due to factors such as HR departments lacking sufficient capabilities and employers feeling uneasy about asking questions around race/ethnicity.

Whether the recent guidance on ethnicity pay reporting will promote more inclusive workplaces will largely depend on whether the employer chooses to monitor ethnicity pay disparities and how the employer chooses to engage with and act upon that data. This will not only be largely shaped by the employer’s initiative, but also whether the employer has sufficient resources to collect the data, analyse it and determine what appropriate measures should be taken to close the pay gap.

Given that change will be largely driven by the extent to which employers show a sense of initiative, we are doubtful whether we will see meaningful change across workplaces in the UK unless and until the Government makes such reporting mandatory across all workplaces that employ more than 250 employees, as is currently the case with gender pay gap reporting. Even then, whilst making ethnicity pay gap reporting mandatory may be one step towards closing the ethnicity pay gap, it is highly questionable how successful mandatory gender pay gap reporting is currently proving in closing the gender pay gap. Mandatory ethnicity pay reporting is therefore likely to be just one aspect in a longer list of initiatives needed to promote and achieve genuine equality of opportunity amongst different ethnicities. Mandatory ethnicity pay reporting alone will not achieve this objective without other significant shifts in wider educational, employment and social policy.

How may we help

Farore Law regularly undertakes investigations for companies and other bodies concerning allegations relating to equal pay and advises organisations (such as barristers’ chambers and law firms) on advancing their diversity and managing any gender pay gap. Our expertise as a firm makes us well placed to advise employers on how to manage any ethnicity pay gap identified within their organisation as well.

Lucas Nacif