Ethnicity Pay Gap Reporting: What Every Employer Should Know

The King’s Speech this summer confirmed Labour’s manifesto pledge to introduce mandatory ethnicity pay gap reporting for larger employers (those with 250+ employees) which will be publicised, mirroring the current gender pay gap reporting obligation.

Similarly, the Equality and Human Rights Commission (EHRC) recently submitted a report to the United Nations regarding racial discrimination in the UK, including within the workplace, which found that Pakistani, Bangladeshi and Black groups in Britain had the highest unemployment rates nationally, with Pakistani and Bangladeshi groups also having the largest pay gaps when compared to White British workers. The EHRC’s report recommended that the Government introduce a mandatory duty on employers with more than 150 staff to monitor and report on ethnicity recruitment, retention and progression, along with a requirement for mandatory action plans that outline how gaps and inequalities will be addressed.

Given the incoming duty to report on an employer’s ethnicity pay gap and in light of the EHRC’s report, employers may question exactly how to address any inequalities in relation to pay: what does this actually look like in reality? What practical steps can a business take? Why do it in the first place?

The business case: why report on your ethnicity pay gap?

The obvious answer to this question is that it will soon become a legal obligation to report on your company’s ethnicity pay gap, so it is better to get ahead of this now or at least be prepared for when it becomes a legal requirement. However, smaller businesses (for whom it will not be mandatory under the current plans) may question why they should invest the time and resources in a process that may expose pay gaps, considering it to be a ‘no-win situation’.

A business which chooses to report on its ethnicity pay gap will send a strong signal about its commitment to understanding and addressing any inequalities that exist in its workplace. This could be beneficial for recruitment purposes, as doing so could attract a wider pool of job applicants. This is especially useful for companies in a competitive market as demonstrating a commitment to monitoring and addressing workplace inequality can set your business apart from competitors. It also can help with the retention of staff at a time when employees are more willing than ever to shop around and switch employers, as tackling inequalities at work fosters a sense of fairness and inclusivity, positively impacting on the overall culture of a business. Ultimately, tackling inequalities will increase diversity of the workforce, providing a business with a wider pool of skills and talent and improved productivity.

Understanding the problem

The first step in tackling workplace inequalities is to establish the cause of any identified disparities. This requires a comprehensive assessment of an organisation’s current practices, policies and workforce demographics. As a starting point, employers could investigate the following:

• Recruitment: employers should review their current recruitment processes, examining whether some ethnic groups are more likely to be recruited into lower paid roles, or whether they are more likely to work in certain locations and if that has an impact on pay.
• Retention: similarly, establishing if there is a disparity in rates of retention of employees from different ethnic groups can help a business understand the cause of its pay gap.
• Salaries and Bonuses: a detailed review of pay structures may enable a business to ascertain whether specific aspects of pay differ by ethnicity, for example starting salaries, or if some ethnic groups are more likely to work in specific roles and whether that is reflected in pay.
• Promotions and career development: is there an imbalance in respect of achieving promotions or underrepresentation in leadership positions? This may suggest barriers to career progression, which could be a cause of the pay gap.
• Type of work carried out: Employers could also review any disparities between the type of work that individuals are employed by. The EHRCS’s report found that ethnic minority workers were more likely than White British workers to be in insecure employment, such as agency work, casual work, seasonal work and employment based on zero-hours contracts and are over-represented in low-paid roles.

Taking action

Once the cause of the pay gap has been identified, the next step is to develop an action plan tailored to the company’s specific circumstances, detailing how the business will address its ethnicity pay gap. It is important to be realistic and set goals within an achievable time frame, rather than setting arbitrary targets to reducing any identified pay gaps. Instead, action plans should commit the business to addressing specific issues identified as potential causes of the pay gap.

It may not be feasible to address all issues at once, therefore employers should prioritise and adopt a long-term approach. For example, immediate actions might focus on recruitment practices, while longer-term goals could include developing career support programmes, professional networks or mentorship schemes as a measure to tackling underrepresentation in promotions and leadership positions. A detailed action plan is only as good as its implementation, so employers should take steps to ensure it is monitored and adjusted if required and establish clear roles and responsibilities for individuals to oversee its implementation, such as having a dedicated diversity and inclusion officer or committee overseeing its progress.

There is no one-size-fits-all solution to addressing pay gaps. Every business must take the time to understand its unique challenges and develop a tailored action plan that is realistic and adaptable. Please contact Jake McManus if you would like support in establishing the right approach to tackling any identified ethnicity pay gap, or workplace inequalities more generally.