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9
min read

Ethnicity pay gap reporting: Everything you need to know

Written by
David Whitfield
Ethnicity pay gap reporting: Everything you need to know

No one knows when - or even if - ethnicity pay gap reporting will become mandatory.

Quite frankly, the UK government’s failure to legislate ethnicity pay gap reporting is mystifying. But this is not the time to bury your head in the sand.

Ethnicity pay gap reporting is essential if you want to be known as a fair, diverse and equal employer. And once you gain clarity on the topic, there’ll be nothing to stop you.

This guide takes you through the basics of ethnicity pay gap reporting. And we’ll answer some of the most common questions so you don’t have to search for them.

Let’s jump right in…

The government’s decision in March 2022 not to introduce mandatory ethnicity pay gap reporting is not just disappointing, it is a blow to the deep, ongoing work being done to create an equal and fair world. 

Because without mandatory pay gap reporting legislation, companies will largely not report. 

But this is not the time to bury your head in the sand. 

Ethnicity pay gap reporting is essential if you want to be known as a fair, diverse and equal employer. 

Not only this, but self-reporting is more than possible (and indeed straightforward) if you know-how. And once you gain clarity on the topic, there’ll be nothing to stop you.

In this guide, we take you through the basics of ethnicity pay gap reporting. Plus, we’ll answer the most common questions, so you don’t have to go searching for them.

Let’s jump right in…

What is ethnicity pay gap reporting?

The ethnicity pay gap is commonly defined as the difference in the average pay between all Black, Asian and minority ethnic employees in an organisation, and all White employees.

For example, where there is a median pay gap of 17%, this means that the pay of employees from Black, Asian and Minority Ethnic backgrounds is on average 17% lower than the pay of their White colleagues.

And ethnicity pay gap reporting is the public disclosure of that information.

Is ethnicity pay gap reporting mandatory?

Ethnicity pay gap reporting is not mandatory.

Unlike the gender pay gap, there is no legal requirement for companies to publish their ethnicity pay gap. 

That’s despite unions, businesses, and organisations having long urged the government to introduce mandatory reporting. 

In a joint letter in June 2021, the CBI business lobby, TUC and Equality and Human Rights Commission called on ministers to bring in mandatory disclosure with the aim of increasing the number of employers reporting staff ethnicity pay gaps. 

And on Monday 25 October 2021, the House of Lords debated ethnic pay gap reporting. Lord Boateng, the first Black member of the Cabinet, put forward the debate. 

Plus, CBI president and Change the Race Ratio Chair, Lord Karan Bilimoria has argued for a faster takeup of ethnicity pay gap reporting.

In fact, the Department for Business, Energy and Industrial Strategy launched a consultation back in 2018, in which it recognised that: 

“... it is time to move to ethnicity pay gap reporting”.

And despite the consultation closing in January 2019, the government had failed to respond. Until now…

Will ethnicity pay gap reporting ever be compulsory?

In March 2022, the government response to a report by the Commission on Racial and Ethnic Disparity (CRE) with a few choice sentences on ethnicity pay gap reporting.

In those sentences, the government has confirmed that it will not be legislating for mandatory reporting. Instead it will “support” organisations with voluntary reporting - as recommended by the CRE.

The truth is, no one knows if ethnicity pay gap reporting will become compulsory in the UK in the future. 

But for now it is clear that mandatory reporting will not be bought in.

MPs, firms and campaigners have long asked for ethnicity pay gap reporting to be mandated.

The House of Commons Women and Equalities Committee (WEC) was the most recent to call on the Government to introduce a mandate for ethnicity pay gap reporting. 

And the Chair of the Committee, Rt Hon Caroline Nokes MP, referred to the Government’s failure to move forwards on ethnicity pay gap reporting, “perplexing”. 

In fact, back in 2016, the government asked Baroness McGregor-Smith to examine the barriers faced by people from ethnic minorities in the workplace and what could be done to address them. 

One of the recommendations in Baroness McGregor-Smith’s report, Race in the Workplace, was that the government should legislate for mandatory reporting of ethnicity pay data by a £20,000 pay band.

Despite the government saying that they were persuaded by Baroness McGregor-Smith’s case for a mandate…

… They said they expected businesses to lead and move ethnicity pay gap reporting forward voluntarily.

Which companies have reported their ethnicity pay gap?

The question is: 

Have organisations stepped up to voluntarily declare as the Government expected?

In short, no.

Although some companies have taken the steps to self report, the majority have not. 

In fact, our Ethnicity Pay Gap Database paints a clear picture of ethnicity pay gap reporting in the UK.

Here’s what it shows:

  1. Progress on ethnicity pay gap reporting is slow: Since 2018, only 170 companies have disclosed their ethnicity pay gap.
  2. Commitment from organisations appears to be lacking: Of the 170 companies that disclosed their ethnicity pay gap, only four reported consecutively across the four years.
  3. The want to create equal workplaces seems to have declined: The number of companies that have reported their ethnicity pay gap isn’t just low, it is less than it was before the Covid-19 pandemic. 

64 organisations reported their ethnicity pay gap in 2021, down 50% from the previous year.

And these are not figures we expect to see much movement on.

That’s because when we questioned 125 organisations - which included 12 FTSE 100 - for our Outlook 2022 report, 18% said they have absolutely no intention to report their ethnicity pay gap. 

Not this year.

Not next year.

Most organisations have no defined plan to report on ethnicity pay gap.
  • Only 10% had published it.
  • Only 16% had a plan to publish it,
  • 56% said they’ll eventually publish their results.

If one thing is certain, it’s that (without minor exceptions) organisations are not stepping up to voluntarily report on their ethnicity pay gap.

Without a mandate, it’s unlikely this will change.

What was the ethnicity pay gap in 2021?

Our Ethnicity Pay Gap Database shows the median pay gap of those organisations that did report in 2021, was 10%.

That’s down 2% on the previous year.

Plus, each year, the ONS reports on the UK’s ethnicity pay gap. 

It uses information from the Annual Population Survey (APS), the Annual Survey of Hours  (ASH) and Earnings and the Labour Force Survey (ELFS) as the foundation of its report.

Here’s the key findings of its most recent ethnicity pay gap report:

First, the median hourly pay for white British employees was £12.40 per hour.

And the median hourly pay for employees from an ethnic minority was £12.11 per hour.

Second, this average varied greatly amongst ethnic minority groups.

For instance: 

  • White and Black African employees earned, on average, £10.75 per hour.
  • Pakistani employees earned, on average, £10.55 per hour.
  • On the other hand, Chinese employees earned, on average, £15.38 per hour.

What does all of this data highlight? In short: considerable disparities in the kinds of employment and earning received amongst ethnic groups.

Why are organisations NOT reporting ethnicity pay gaps?

All in all, UK organisations seem to be grappling with ethnicity pay gap reporting. 

This is despite wide acknowledgement that reporting this data is a vital step towards creating equal workplaces.

Clearly, the lack of legislation is enabling organisations to side-step from taking action.

And that’s not all…

Without a mandate and clear guidance around ethnicity pay gap reporting, it is tricky for organisations to know how to tackle discrimination.

Let’s acknowledge that the obstacles to collecting, analysing and reporting ethnicity pay gap data are greater than for gender pay reporting.

In addition, slow progress on ethnicity pay gap reporting can also be attributed to the following:

  1. The lack of comparable data available which has led to confusion.
  2. An uncertainty around terminology which has stopped people from having conversations about ethnicity. In fact, a 2021 report from the Black British Business Awards highlighted a pervasive sense of discomfort around discussing race in the workplace. No doubt, fear of saying the wrong thing is holding organisations back from addressing, and, actively engaging with, the ethnicity agenda. 
  3. Confusion around the ‘right’ or ‘appropriate’ categories of ethnicity to report. And, the complexity of intersectionality of ethnicity, has led to organisations burying their heads in the sand.

Examples of ethnicity pay gap reporting

It is encouraging to see an increasing number of organisations stepping up to declare their ethnicity pay gap.

There’s no question: Reporting is a positive step.

It shows an organisation is open and transparent about matters of equality, diversity and inclusion.

Examples of ethnicity pay gap reporting, include: 

PwC. 

PwC has voluntarily published its ethnicity pay gap data since 2016. 

It believes it is an important step towards ensuring its workforce is diverse, inclusive and fair for everyone:

“The real driver of change inside our business is the way we use the data we’ve collected to identify the pain points behind the numbers, and form clear, targeted action plans to address them. The median BAME pay gap in 2018 was 10.10% and in 2019 it was 4.70%.”

Network Rail.

Network Rail has clearly outlined that it will voluntarily publish its ethnicity pay gap report ahead of the anticipated government legislation:

“We want to lead the industry on diversity and inclusion and this report is an important tool to help us achieve our ambition.”

Network Rail has set up a project called, Our Race Matters.

This is to increase ethnic minority representation across the organisation, particularly in senior roles.

Why ethnicity pay gap reporting now?

For organisations in 2022, it should be less a question of why ethnicity pay gap reporting.

And more a question of, why not

Unquestionably, there is a moral argument for closing the ethnicity pay gap.

No one should be at a disadvantage because of their ethnic origin.

In fact, the Equality Act 2010, which has been in place for more than 12 years, makes it unlawful to discriminate (both directly and indirectly) against employees (and people seeking work) because of their race or ethnicity. 

The problem is: it has had little to no impact on the ethnicity pay gap.

In addition, the business case for ethnicity pay gap reporting is now substantial.

And businesses would be foolish to ignore it.

The fact is, study-after-study has highlighted the economic benefits of ethically and culturally diverse teams.

For example, a study by McKinsey discovered that diverse organisations were the most financially successful, being 33% more likely to outperform their peers on profitability.

Plus, if employees get race equality in the workplace right, the economic benefit will be vast.

The McGregor-Smith Review outlined:

“If BME talent is fully utilised, the economy could receive a £24 billion boost.”

Above all, genuine commitments are crucial.

And that’s because consumer capitalism has never been more powerful.

Ethnicity pay gap reporting will signify the commitment you have made to tackle discrimination and stamp out inequalities in the workplace.

How to start reporting ethnicity pay gap

Reporting your organisation’s ethnicity pay gap is an essential part of creating an equal workplace.

Why?

Well, without the data it is impossible to know the state of inequality that exists in your organisation.

In other words…

Sustainable change will not happen without data.

The fact is:

Once you have a solid process in place to calculate the ethnicity pay gap in your company, you’re all set to report every year after. 

And like any good report, its strength is determined by the quality of the data that goes into it.

With that in mind, we have used our extensive research to create a simple, step-by-step guide on ethnicity pay gap reporting.

It includes nine practical steps required to start your ethnicity pay gap reporting journey. 

Here’s the exact process:

  • STEP 1: Create the business case
  • STEP 2: Build the trust
  • STEP 3: Define what data to collect
  • STEP 4: Collect the data
  • STEP 5: Analyse and benchmark data
  • STEP 6: Set targets
  • STEP 7: Create an action plan
  • STEP 8: Track progress
  • STEP 9: Share the results: The success and challenges

The important thing is to understand where you are now by analysing your data and benchmarking your score against your competitors.

That way you can determine which areas need to be improved…

And what targets need to be set to close any gaps.

Final thoughts on ethnicity pay gap reporting

To create a fair workplace, an organisation must understand how extensive its issues are from all perspectives. And not only through the lens of gender.

Although data is just the start of your journey, data-led decisions are the quickest way to make a difference in your organisation.

This wraps up our Ethnicity Pay Gap beginners’ guide for organisations.

Now it’s your turn:

  • Have you reported your ethnicity pay gap?
  • Do you have your ethnicity pay gap data but don’t know what your next step should be?
  • Or maybe you are looking to report for the first time?

Do you intend to report on your ethnicity pay gap? If so, we might have a few things to discuss! Reach out!