New ethnicity pay gap guidance ‘likely to cause a few headaches’

As you may have seen in the news the government has published extensive ethnicity pay gap reporting guidance for UK employers. Unlike gender pay reporting there is currently no mandatory legislative requirement for employers to measure and report on ethnicity pay, but with this guidance the government wants to support employers to collate data and report on it in the hope that it will go on to investigate and deal with pay disparities between different ethnic groups. 

The guidance is voluntary but it’s worth noting that in response to the publication of this guidance Labour repeated its commitment to make ethnicity pay gap reporting mandatory for most employers if they win next year’s general election.

The relevance of the guidance to UK employers is covered in some detail by Susi Donaldson and Shuabe Shabudin in their article for Out-Law. They highlight how it ‘strongly discourages’ binary reporting which, they say, has a tendency to ‘mask detail and nuance’ which might be vital for understanding ethnicity pay gaps. They also explain the approach needed to collecting and analysing data and ways to avoid a low response rates which can often be an issue. 

It's striking that binary reporting is ‘strongly discouraged’ by the guidance yet that’s the approach currently adopted by most businesses given it mirrors the approach they’ve taken with gender pay gap reporting. Instead, the guidance recommends that employers take a more granular approach and show as many ethnic groups as possible. They say that, ideally, employers would report on gaps across all of the 17 ethnic groups listed in the most recent UK census. But how realistic is that? 

Earlier I phoned Shuabe Shabudin to discuss the guidance which goes a lot further than we were expecting. I started by asking Shuabe what is meant by binary reporting:

Shuabe Shabudin: “Fundamentally, binary reporting is when you are just reporting against two groups and in this situation that would be reporting against white employees, and then all other. So, what happens there is you've got all other employees from any minority ethnic background, who were then being clubbed together, grouped together, into one group. Now, that does make it a lot easier to report because there's fewer data sets that you're reporting on, but the downside of that is that you aren't really able to see some of the more granular differences that there may be between, for example, an employee of a South Asian background as compared with a black employee. So, this is often a way that employers have been reporting because as I say, it's easier, and also we do have to have one eye, and employers do have one eye, on the data protection risks and the risk of having too many groups and too many small groups such that people could become identifiable just by their responses to the various questions that there might be, or to the information that's being reported about them. So, that's why I say that binary reporting is what has previously, and quite commonly, been used.”

Joe Glavina: “The recommendation in the guidance is that instead of a binary approach employers broaden it significantly and show as many ethnic groups as possible. On that point you say in your article that’s likely to cause some headaches. Why is that?

Shuabe Shabudin: “The reason I say that will cause some headaches for employers, and the reason that Susi says that it's gone further than we would expect, is that if you're not reporting on a binary basis then you need to be looking at a number of different groups of people, and the guidance actually suggest looking at the most recent UK Census ethnicity classifications. So, if you do that, and if you do then conduct, I think, around 10 calculations for each of the mean and the median pay gap calculations that you would need to undertake, you could be looking at something like 170 different calculations overall. Now, for an employer of a large size, an employer with lots of data and really good systems from which to get that information that might be possible, but for a smaller SME-type organisation, clearly, that's going to put quite a lot of strain on their resources and could just make it unworkable. So, that's one of the reasons why we say it's gone further than we'd expected. A more positive further than expected move is that it also encourages employers to maybe think about some kind of an action plan when they are publishing their supporting narrative and that's great because what we would always advise is that once an employer has undertaken any kind of audit like this, be it ethnicity pay gap, or be it gender pay gap reporting, that's only as good as the what happens next, as the actions, and the steps, that they take afterwards. So, whilst I don't think it will be mandatory for there to be an action plan, at least it being something that's encouraged will hopefully mean that once employers have gone through the time and effort, which can be substantial, of undertaking this kind of ethnicity pay gap, they can then do an audit, have an action plan, and make sure that there are then some tangible changes that make all of it worthwhile.”

Susi and Shuabe’s article on the government’s guidance as it affects UK employers is called: ‘Extensive’ ethnicity pay gap reporting guidance issued to UK employers’ and we have put a link to it in the transcript of this programme along with a link to the guidance itself.

LINKS
- Link to guidance for employers on ethnicity pay gap reporting
- Link to Out-Law article: ‘Extensive’ ethnicity pay gap reporting guidance issued to UK employers’