Ethnicity pay gap reporting: A bigger challenge

Six months on from the first gender pay gap reporting deadline, the government has started consulting on mandatory ethnicity pay gap reporting. The consultation seeks views on the scope, method, challenges and benefits of ethnicity pay reporting. Let’s be clear: the purpose of this consultation is not whether ethnicity pay reporting should be introduced but how.

Where possible, it appears that ethnicity pay reporting will mirror gender pay reporting obligations. This will be a relief for those currently grappling with the rather different approach taken in relation to CEO pay-ratio reporting requirements Incentives Client Alert (June). But ethnicity pay reporting presents its own unique challenges.

When it comes to ethnicity, the comparative data-sets aren’t binary: it isn’t as simple as comparing group A with group B.  One of the approaches suggested by the government is to present a single pay gap figure, showing the pay of ethnic groups as a percentage of white employees. This has the advantage of simplicity but, given the wide variations in earnings between ethnic groups (identified in the consultation), how meaningful would it be?  The price of simplicity could well be the quality of information produced.

An alternative approach is to produce several pay gap figures, using a classification system based on five or more different ethnic groups. This would be more instructive but much more complex to produce. There are also several classification systems available and some employers will have developed their own system to reflect the demographics of their own workforce.  There is potential for inconsistency, making it difficult to draw comparisons between organisations. 

One of the biggest problems will be the base demographic data. A pre-requisite to meaningful reporting is having an accurate set of data to work with.  Many employers don’t collect data relating to ethnic origin; those that do often suffer from a low declaration rate, with employees unwilling to state their ethnic origin.  Employers may simply not have enough information to work with. 

The government cites transparency as the first step in overcoming barriers to creating a diverse workforce. Gender pay reporting has certainly shone a light on the male/female pay differential. The ethnicity pay gap involves a more complex set of data and achieving transparency in this area represents a greater challenge.