Ethnicity pay gap reporting guidelines: Six key questions answered

The Government has published guidance for employers that wish to report their ethnicity pay gap. We look at the guidelines around what data to collect, how to analyse and make sense of the results, and how to develop an action plan to remedy any differences revealed.

There is a statutory requirement for UK employers with at least 250 employees to measure and report their gender pay gaps annually.

While there is no corresponding legal requirement for employers to report ethnicity pay differences, many already do so and see ethnicity pay gap reporting as an important step in their diversity and inclusion efforts and towards the fulfilment of their environmental, social and governance strategy.

What is an ethnicity pay gap?

In the government guidance, an ethnicity pay gap is defined as a measure of the difference between the average earnings of ethnic groups within an organisation or across the labour market, irrespective of their role or seniority.

An ethnicity pay gap is not a comparison between employees of different ethnicities who have the same job or duties. An employer could have a fair pay and reward policy, but the data might still reveal a pay gap.

Why is measuring the ethnicity pay gap important?

The guidance points out that the workforce in the UK is increasingly diverse but data indicates that there remain significant differences in earnings between ethnic groups. Some ethnic minority groups earn less on average per hour than white British employees, while others earn more.

By collecting and analysing ethnicity pay information, employers can identify disparities in average pay and begin to develop an action plan to address any differences.

Is measuring the ethnicity pay gap the same as measuring the gender pay gap?

The ethnicity pay gap reporting guidance mirrors the methodology used in gender pay gap reporting, but gathering and analysing ethnicity pay data is a more complex process.

In part, this is because gender pay gap reporting requires a comparison between only two groups. In contrast, ethnicity pay gap reporting may involve many more groups, depending on the diversity of the workforce in a particular organisation.

Collecting data requires sensitivity and the guidance recommends that employers do so by asking employees to report their own ethnicity, always including a "prefer not to say" option.

In order to make comparisons, the guidance suggests that the data gathered could be distilled into five aggregated categories. For example, the data could be grouped into: Asian; black; mixed; white; and other (alongside a sixth "prefer not to say" category).

What are the possible causes of pay disparities?

The guidance suggests a series of questions that may help employers understand the causes of any pay disparities revealed by the data. For example:

• Are some ethnic groups more likely to be recruited into lower-paid roles in your organisation?
• Is there an imbalance in individuals from different ethnicities applying for and achieving promotions?
• Do people from certain ethnic groups get "stuck" at certain levels within your organisation?
• Are some ethnic groups more likely to work in specific roles than other ethnic groups in your organisation, and is this reflected in pay?
• Are some ethnic groups more likely to work in particular locations, and does this have an impact on pay?
• Do employees from different ethnic groups leave your organisation at different rates?
• Do particular aspects of pay (such as starting salaries and bonuses) differ by ethnicity?

These questions should help employers to understand that workers in a particular ethnic group may, for instance, earn less on average than other workers because:

• they disproportionately apply for lower-paid positions; or
• the organisation does not provide them with adequate progression opportunities.

How should the calculations be reported?

The complexity of ethnicity pay gap reporting means that relying on a single measure may have little value.

The guidance recommends that employers should present a range of calculations, broken down by ethnicity categories, so as to allow analysis for different ethnic minority groups. Suggested calculations include:

• pay quarters that measure the representation of employees in different ethnic groups at different levels of pay in an organisation;
• representation of ethnic groups across the organisation as a whole;
• mean and median pay gaps that measure the difference between average earnings and bonuses in an organisation for different groups; and
• the proportion of employees that did not disclose their ethnicity when asked by their employer - this is one measure of the level of engagement of employees.

The guidance also recommends the inclusion of a supporting narrative, which should seek among other things to explain why, based on a close analysis of the data, employers believe any pay disparities exist.

What sort of action plan should employers publish?

The guidance suggests that employers might want to publish an action plan setting out how they intend to address any disparities in their ethnicity pay figures.

The action plan should establish clear, measurable targets and a time frame for their achievement. The targets should be related to addressing specific issues identified as probable causes of unfair pay differences.