The UK Government has published its response to the consultation on a mandatory approach to ethnicity pay reporting, which closed in 2019.

This comes one year after the government confirmed that it would not introduce legislation requiring the mandatory reporting of ethnicity pay gaps.

The response provides further explanation for the government’s decision not to implement mandatory reporting and sets out what progress they have made since the consultation closed, including the introduction of guidance in April 2023 for employers who choose to voluntarily report on their ethnicity pay gap.

This article summarises the response to the consultation and the additional guidance for employers who voluntarily report.

Response to consultation

The government outlined a number of issues with regard to ethnicity pay reporting, including:

• Complexities and genuine difficulties in designing a methodology during the voluntary methodology testing exercise between June and August 2019, with mixed views on the best metric to use in designing a methodology for ethnicity pay reporting.
• Concerns that a single reporting model may not work for all employers and that a “one size fits all” approach to action-planning will not be appropriate in all circumstances.
• Collecting data on ethnicity is a burden on business and legal and General Data Protection Regulation (GDPR) requirements act as a barrier to collecting the data.
• Reporting on a binary basis (e.g., ethnic minority versus non ethnic minority) is problematic as it masks the significant variations in labour market outcomes between ethnic groups.
• Employers highlighted that reporting at a more granular level risked results being skewed by particularly large or small pay values because of low numbers within ethnic groups and also risks removing the anonymity of individuals.

As a result, the government has chosen to not implement a mandatory approach to ethnicity pay reporting. Instead, in line with the recommendation made by the Commission on Race and Ethnic Disparities Report, they will continue with a voluntary approach to ethnicity pay reporting and have issued guidance for employers who voluntarily report on how to measure, report on and address any ethnicity pay differences within their workforce.

What does the guidance say?

The guidance is intended to help ensure that there is consistency amongst employers who do report voluntarily and to provide employers with the tools to understand and tackle pay gaps within their organisations. 

The guidance includes advice on:

• collecting ethnicity pay data for employees;
• how to consider data issues such as confidentiality, aggregating ethnic groups and the location of employees;
• the recommended calculations and step by step instructions on how to do them;
• reporting the findings;
• further analysis that may be needed to understand the underlying causes of any disparities; and
• the importance of taking an evidence-based approach towards actions.

Addressing the gap

The guidance suggests that where disparities are identified employers should diagnose the cause of these in order to help them understand the figures and assess whether there are reasonable explanations or if there are any areas of concern. This will help employers identify targeted and effective actions that will have a real impact on disparities in pay. 

The guidance suggests that employers may want to put in place an action plan to explain how they intend to address unfair gaps in its ethnicity pay figures. In particular, a good action plan will:

• Name clear, measurable targets that the employer commits to achieving within a chosen timeframe;
• Set out actions that are aimed at better understanding its pay statistics and address any unfair disparities;
• Be realistic and aim for ambitious but achievable outcomes;
• Avoid setting a zero-percentage gap as this fails to appreciate the complexity of why pay gaps arise;
• Commit to addressing specific issues identified as likely causes of unfair pay gaps; and
• Consider improving the diversity of the talent pipeline in the organisation as an action.

Deciding whether to report on ethnicity pay gap

We are seeing more organisations investigating their ethnicity pay gap even if they do not actually report the findings as it can help to identify issues and inform strategy for employers who are looking to ensure pay and progression is fair for all ethnic groups.

The Labour party’s Employment Rights Green Paper includes a commitment to make the publication of ethnicity pay gaps mandatory for firms with more than 250 staff.

Investigating the gap now and addressing causes of disparities could help organisations be better placed for the future.

If you would like to discuss ethnicity pay gap reporting, including whether it would be appropriate for your business, help with carrying out your calculations, analysing the data and formulating an action plan, please contact your usual member of our team, Harry Martin or Amy Douthwaite.

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