On 17 March 2022 the policy paper Inclusive Britain: Government Response to the Commission on Race and Ethnic Disparities was published, pledging in action number 16 to "address the challenges with ethnicity pay gap reporting to support employers who want to demonstrate and drive greater fairness in the workplace."

Just over a year later, on 17 April 2023, the government has set out a series of guidance papers designed to help employers wishing to analyse and report on their ethnicity pay. Here we briefly summarise what each of the five papers lays out.

 

1. Introduction and overview

This section provides an overview of how analysing ethnicity pay information enables employers to “identify and investigate disparities in the average pay between ethnic groups in their workforce". It sets out the aim of the guidance as developing a "consistent, methodological approach to ethnicity pay reporting, which can then lead to meaningful action, while remaining proportionate and without adding undue burdens on business". In further sub-sections it addresses the meaning of a pay gap, and the difference between a 'Pay Gap' and 'Unequal Pay', a distinction we have also drawn in recent blogs on the future for gender, ethnicity, and other pay gap reporting and long-term talent strategies to address pay gaps?

 

2. Understanding and reporting your data

This section explains to employers how they can set about tackling disparity, but only once they have understood their pay calculation results. It offers reasons why an ethnic group might be underrepresented in an organisation, and challenges businesses to identify patterns, and act on them. Finally, it provides guidance on reporting ethnicity pay calculations, which is not required but can help improve transparency, and on producing an employer action plan with measurable targets to achieve within a chosen timeframe.

 

3. Collecting ethnicity data

This section provides information on learning which employees count for reporting purposes, and on collecting employee ethnicity data, an activity which is described as "complex" and for which employers are encouraged to "devote time and resources" and "seek expert advice as needed". The best way for employers to collect ethnicity data is by asking employees to report their own ethnicity, but always giving an opt-out, such as ‘prefer not to say’. There is also information about the Race Disparity Unit's advice around using the Government Statistical Service (GSS) harmonised standards for collecting someone’s ethnicity data.

Binary vs multiple categories - On this latter point, employers are encouraged to use specific ethnic groups when calculating ethnicity pay gaps, rather than broader categories. Reporting a binary “white vs non-white” gap is not granular enough to understand the different barriers ethnicities face in the employment market. 

Innecto is aware that capturing ethnicity data has been a challenge for employers, but this guidance should hopefully improve the response rates and the quality of the data shared. Geography also plays an important part as some parts of the UK are more ethnically diverse than others. Again, the guidance provided will aid employers in locations with small ethnic minority populations, enabling them to produce meaningful ethnicity pay gap reporting statistics.

 

4. Preparing your payroll data

This longer paper provides guidance specific to gathering the payroll data needed for each relevant employee to calculate ethnicity pay figures, including determining the relevant pay period. It then sets out five tasks with sub-tasks, as follows:

• Task 1: Make a list of employees and their ethnicity – including case studies of relevant and non-relevant employees
• Task 2: Add ordinary pay – including the pay and allowances to take account of in reporting, and what not to include
• Task 3: Add bonus pay – including any deductions necessary and the treatment of various types of employees and workers
• Task 4: Add weekly working hours – used to help calculate an employee’s hourly pay, with useful case studies for atypical working practices
• Task 5: Work out your employees’ hourly pay – with useful steps for making the calculations

 

5. Making your calculations

The guidance paper outlines the ethnicity pay figures and measures recommended for the most effective outcomes. Sections include choosing which ethnic groups to analyse; Deciding how to aggregate; Recording aggregated groups; and Presenting and writing about ethnic groups. It also provides example calculations for report output types and guidance on understanding the figures.

By presenting a consistent methodology this guidance shifts the emphasis towards employers deciding whether to report their ethnic pay gap. Many organisations have been anticipating this as a new requirement and we have been working with clients over the last few years running ethnicity pay reports and providing the deeper analysis needed to help companies understand their pay gaps and develop action plans to address them and move forward.  

Innecto Consultants specialise in helping businesses address gender and ethnicity pay gaps. If you need help in this area please contact us.

More on this topic:

What is the future for gender, ethnicity, and other pay gap reporting?

Rethinking your long-term talent strategy to address pay gaps

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