Ethnicity pay gap reporting – why the data matters?

14 December 2018

Requirements for gender pay gap reporting could soon be followed by requirements for ethnicity pay reporting. Who it will affect, and what they will need to provide, will depend on the outcome of the on-going government consultation. Yet your organisation might benefit from thinking about it anyway. 

Why a new legal requirement for ethnicity pay reporting?

The idea of ethnicity pay gap reporting was one of the recommendations made by Baroness McGregor-Smith in her ‘Race in the workplace’ review, namely the need for listed companies and all businesses and public bodies with more than 50 employees to publish a breakdown of employees by race and pay band. She placed the onus on government to legislate and make this happen. 

The current consultation is seeking views on the benefit of the reporting; what ethnicity pay information should be reported by employers to allow for meaningful action; who should be expected to report; and what help might they need. It closes on 11 January 2019 and is open to all. The results will inform future government policy on ethnicity pay reporting, but there is no published timeframe for when new legislation can be expected.

Interestingly, the consultation doesn’t specifically mention two other data-driven recommendations:

  • listed companies and all businesses and public bodies with more than 50 employees should publish five-year aspirational targets and report against these annually; and
  • employers should include a diversity objective in all leaders’ annual appraisals to ensure that they take positive action seriously.

Providing this information would undoubtedly help address existing concerns about the willingness of employees to disclose their ethnicity as well as deliver the cultural shift that is at the heart of the recommendations. 

It should be noted that the government believes the threshold should be employers of over 250 employees should be expected to publish ethnicity pay data because it would impose too great a burden on small employers.

Working towards a fully inclusive workplace

Baroness McGregor-Smith recommended publishing this data, not to name and shame, but to provide a robust baseline, evaluate progress towards and identify best-practice for creating a fully inclusive workplace. She places more emphasis on the narrative surrounding the figures and most of her recommendations focus on behavioural change: 

  • increasing understanding of differences and associated challenges through training and facilitated knowledge sharing;
  • championing positive actions and challenging bias;
  • constructing recruitment processes that engage with a more diverse pool of talent; and 
  • imbedding transparency in rewards, recognition and progression.

We have also previously highlighted the need to create a culture that encourages diversity of opinions to flourish. If people feel that they can speak up and bring their whole self to work, they are much more likely to disclose the information needed for the reporting. Not only will they not fear the consequences of their action, they are much more likely to see the value of sharing that information. 

Why does ethnicity pay gap reporting matter?

Analysis by Department for Business, Energy and Industrial Strategy (BEIS) for the review suggests that the potential benefit to the UK economy from full representation of black, asian and minority ethnic (BAME) individuals across the labour market through improved participation and progression is estimated to be £24bn per annum, which represents 1.3 per cent of GDP (Source: BEIS). Other studies have highlighted the benefits of widening the latent pool to address skill shortages, meet customers’ requirements, increase employee engagement and avoid group think, which leads to innovation and increased productivity. 

Whatever the outcome of the consultation, there is a clear business case for looking at your ethnicity data and what it means for the diversity of your business.

  • What information you have and what it is telling you?
  • What information are you missing and how might you get it? 
  • What are your aspirational targets and why?
  • What do you need to do to get there? 

This is not a quick exercise and will be work in progress. However, it is an important step to inform your people plan and other strategic business decisions. In addition, if and when the legislation changes, you will be ready!

If you would like to discuss any of the points raised further, please contact Caroline Bellanger Wood or Kerri Constable