Ethnicity pay gap reporting is already on the radar for many large organisations. While it remains voluntary, the UK government has set out guidance on how to measure, report, and address ethnicity pay differences within the workforce.
What is the ethnicity pay gap?
The ethnicity pay gap is the disparity in average pay earned by people from ethnic minority groups, compared to the ethnic majority group.
The difference between the median hourly earnings of the reference group (White or White British) and other ethnic groups as a proportion of average hourly earnings of the reference group.”Office for National Statistics (ONS)
The latest ONS survey (2019) found that, across the whole of England and Wales:
- Most ethnic minority groups earned less, but the extent of this varied widely between groups.
- Those of Pakistani ethnicity earned 16% less on average than their White British counterparts.
- Those of Black African ethnicity earned 8% less, while those of Black Caribbean ethnicity earned 4% less.
- People of White Irish and Chinese ethnicity earned more on average than their White British counterparts.
- Overall, those of White ethnicity earned 2.3% more on average than the combined ethnic minority group.
- This was down from 8.4% in 2014, meaning the gap narrowed overall.
- Regional disparities are high: the ethnicity pay gap was largest in London (23.8%) and smallest in Wales (1.4%)
Two years on, in 2021, PWC figures put the ethnicity pay gap between 4 – 10%, with the highest gap translating to £8,000 per year.
Why is ethnicity pay reporting on the agenda?
The growing commitment to diversity, equity, and inclusion (DEI) has brought attention to the differences in earnings across groups of society.
In management roles, Business in the Community (BITC) figures reveal a pay gap ranging between £1,164 and £5,911, with the shortfall often exceeding £4,000 per year.
Payroll and HR reporting can play an important role in highlighting and addressing these gaps.
Gender pay gap reporting began in 2017 ‘with the aim of narrowing and eventually eliminating the pay differential between men and women’ (KPMG).
Ethnicity pay gap reporting is similarly aimed at identifying, tracking, and prompting action to reduce pay inequality.
Ethnicity pay reporting is an important lever for businesses and their stakeholders to assess if and where inequality based on ethnicity exists in their workforce. That’s why we believe it is so important that businesses both capture and learn from this data.”Peter Cheese, Chief Executive, CIPD
What does the government guidance say?
In Ethnicity Pay Reporting: Guidance for Employers (Department for Business and Trade), the UK government says:
“Ethnicity pay reporting is one of the tools employers can use to build transparency and trust among their employees. We want to help those employers who want to report their ethnicity pay data by providing a consistent approach that they can follow, which will allow for meaningful comparisons.
The guidance documents cover:
- 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
- The importance of taking an evidence-based approach towards actions
Will ethnicity pay gap reporting be mandatory?
For the moment, it’s a voluntary initiative. However, it’s worth noting that gender pay gap reporting also began as such, before becoming law for large organisations in 2017.
In 2022, the independent Commission on Race and Ethnic Disparities made 24 recommendations, including ‘Investigate what causes existing ethnic pay disparities’.
The government response, Inclusive Britain, translated this into Action 6, a commitment to address the challenges of ethnicity pay gap reporting and publish guidance.
It’s clear this is a policy area that is likely to see further developments. It could become an obligatory part of HR reporting for larger organisations in future.
Which companies are already reporting their ethnicity pay data?
Several organisations are already reporting voluntarily. The number doing so increased from 11% in 2018 to 19% in 2021.
Notable employers include:
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