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Voluntary ethnicity pay gap reporting: Government guidance for employers issued - Financial Services

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By Hilary Larter & Ceri Fuller

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Published 16 May 2023

Overview

For the first time, the Government has issued guidance on ethnicity pay gap reporting, aiming to help employers who wish to voluntarily report their ethnicity pay gap make meaningful comparisons, allowing for meaningful action to reduce any gaps.

THE FACTS

Ethnicity pay gap reporting is not currently mandatory, and neither is it becoming so with the introduction of this guidance. This is perhaps because, as the guidance recognises,  ethnicity pay gap reporting is more complex than gender pay reporting (which is mandatory for  employers with 250 or more employees).  Ethnicity pay gap analysis can potentially cover many ethnic groups, depending on the diversity of the workforce, and may require employers to make difficult decisions about how best to combine these groups to ensure results are reliable and statistically sound.  The guidance also recognises that “it should not be assumed that any disparities are necessarily as a result of discrimination” which is a helpful starting point.  

The Government guidance aims to help employers take a consistent and methodological approach to ethnicity pay reporting. It  includes advice on collecting data, confidentiality, aggregating ethnic groups, calculations, analysing and reporting the findings, and developing action plans.  Much of the guidance mirrors the approach set out in guidance for gender pay gap reporting, also recognising that a nuanced approach is needed to reflect the complexity around ethnicity  pay gap reporting. 

The guidance highlights the importance of using detailed ethnicity classifications, using as many ethnic groups as possible, and recommends that employers use classifications from the 2021 census. The guidance does, however, recognise that for some employers it will only be possible to use aggregated groups initially, and five groups are recommended: Asian, black, mixed, white and “other”, keeping this under review with the aim of providing more granular reporting in future years.  The guidance does not recommend dividing the workforce into whites and others for the purposes of the calculations, as this will obscure the disparities.

To preserve confidentiality, the guidance recommends that employers analyse a minimum 5 to 20 employees per group for internal analysis and, where data is published, a minimum of 50 employees.  It also recommends that larger employers aim for 80% of their workforce to be reporting ethnicity, and for this statistic to be set out in any report for context.

WHAT DOES THIS MEAN FOR EMPLOYERS?

For now, ethnicity pay gap reporting is voluntary: the Government has stated that it does not wish to impose additional burdens on businesses at this time.  However, Labour has said that, if in government, it would require larger employers to report on their ethnicity pay gap. This guidance may form the basis of any mandatory requirement.

Both the FCA and the PRA are interested in diversity reporting see our alert here:  and it may be that there is a Regulatory requirement to report on an organisation’s ethnicity pay gap ahead of any legislative change.

Some employers (particularly those who are subject to the Public Sector Equality Duty or are larger and ethnically diverse) already report their ethnicity pay gap, and this guidance is likely to encourage other such employers to do so. There is currently some discretion in the guidance, which there is unlikely to be if and when ethnicity pay gap reporting becomes mandatory, so it’s worth employers with 250 or more employees considering this matter now before a regime is imposed on them. 

Ethnicity pay reporting: guidance for employers - GOV.UK (www.gov.uk)

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