Ethnicity Pay Gap reporting

Is there an ethnicity pay gap?

According to a study by the Office of National Statistics (ONS) on 2022 data, the ethnicity pay gap between white and ethnic minority employees still exists, including when the data is adjusted for pay-determining characteristics.

This is a complex matter - the ethnicity pay gap is not simply a factor of ethnicity but also of other demographic factors such as gender, age and location. For most ethnic groups, men continue to earn more than women. This means that gender pay reporting remains a key exercise for employers in addition to ethnicity pay reporting.
 

Why does ethnicity pay gap reporting matter?

Ethnicity pay reporting is about employers demonstrating a genuine commitment to equality, diversity and inclusion for the benefit of current and future employees alike, and not just for their clients or investors.

Tangible action on all fronts of ESG must be demonstrated, reflecting the mood of society and addressing issues for the common good. Equally, increased social conscience among the younger workforce, especially among Gen Z, means that organisations that are committed to transparency and improving equality are more likely to attract candidates in a competitive job market.

Ethnicity pay gap reporting: what are the challenges for employers?

The most obvious challenge is that many businesses do not hold ethnicity data on their employees. There is no legal obligation for employees to divulge which ethnic group they identify with, and requests for ethnicity data can achieve poor response rates if they are not managed very carefully.  

You will need to build a workplace culture that encourages employees to disclose this information and foster a culture that will enable your business to take the positive step of analysing and publishing ethnicity pay data. 

Another challenge is the fact that individuals may not identify with any of your proposed categories of ethnic groups. Determining what those classifications should be and how to compare pay across different ethnic categorisations is not necessarily straightforward and should be considered carefully. 

As an employer, you must also ensure that the anonymity of your employees is maintained when collecting ethnic data – this raises the question of the potential ability to identify individuals where the ethnic category is particularly small within an organisation. 

Finally, figures reported for smaller employers may prove to be less informative because of limited data. Even for businesses with more than 250 employees, where there is a large diversity of different ethnic groups within the workforce, there may only be a handful of employees within each of many categories, thereby making meaningful comparisons more challenging.

Expected legislative changes to Ethnicity Pay Gap reporting

The Government’s consultation proposed that only employers of 250 or more employees should have to report, in line with the gender pay gap reporting obligations and following a change in Government in 2024, it was announced that the Draft Equality (Race and Disability) Bill will be brought before Parliament. Among other matters, the Bill will call for mandatory ethnicity and disability pay gap reporting for UK businesses with more than 250 employees. 

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Need help with your Pay Gap Reporting?

We can support your organisation in analysing your ethnicity pay data and applying that data to start making meaningful organisational change. For help and advice, get in touch with your usual BDO contact or anyone in our gender pay gap reporting team.
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Ethnicity pay reporting guidance

Whilst the current position on reporting has changed from the decision of the previous Government to keep reporting voluntary guidance was published in 2023 (see here) with the aim of helping those employers who wished to report ethnicity pay gaps with some of the challenges associated with ethnicity pay reporting. This is the first guidance to set out an approach to measuring pay differences.  

The aim of the guidance is to develop 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. 

The end goal of ethnicity pay gap reporting, whether it is mandatory or voluntary, is to encourage greater employer transparency, accountability and action in relation to the ethnic diversity of the workplace. Obviously, action in this area doesn’t stop at publishing ethnicity pay gap figures – rather, taking appropriate steps based on what the data says about the organisation’s ethnic diversity and pay is the crucial end goal. As with the conversation around the gender pay gap, opening up a dialogue with employees on ethnicity pay is likely to improve employee engagement and help demonstrate an employer’s commitment to improving diversity and inclusion. 

There can be real benefits for employers who grasp the nettle and start making strides towards transparency in ethnicity pay. 

We can help with your ethnicity and gender pay reporting requirements – get in touch with our expert team today.

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Key Contacts

Andy Goodman

Andy Goodman

Partner, National Head of Global Employment Services
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Matthew Emms

Matthew Emms

Partner, National Head of Share Plans & Incentives
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