Government publishes guidance on ethnicity pay gap reporting
18 May 2023
On 17 April 2023, the Government published guidance on voluntary ethnicity pay gap reporting for the first time.
This guidance had been expected since it was first announced in the Government’s Inclusive Britain policy paper, published in March 2022, and represents the acceptance of a recommendation made in a report by the Commission on Race and Ethnic Disparities.
The newly published guidance includes:
Recommended ethnicity classifications to use when collecting and publishing data
Advice on compliance with the GDPR when collecting and publishing data
General advice on ensuring statistical robustness
Formulae for calculating comparable rates of hourly pay
Recommended analyses of pay data
Causal factors to consider when evaluating ethnicity pay data
How to report on data and construct supporting narratives
Criteria for targets suitable for inclusion in an employer action plan
The Government has published separate guidance on positive action, which should be consulted by any employer considering seeking to address a pay gap by, for example, recruiting or promoting employees from particular ethnic backgrounds. Since there is often a fine distinction between lawful positive action and unlawful discrimination, we would recommend seeking legal advice before taking positive action to address an ethnicity pay gap or any other perceived disadvantage to a particular group.
The Government has also published a set of standards for ethnicity data, which set out best practice for public bodies but which may also be useful to private employers undertaking voluntary reporting.
Ethnicity pay gap reporting remains voluntary in the UK, although there have been calls to make it mandatory. (The same is true of disability pay gap reporting, for which there is no official guidance either in existence or pending.) For example, the House of Commons Women and Equalities Committee published a report in 2022 recommending that ethnicity reporting become mandatory for all organizations already reporting for gender pay gap.
The Government has resisted this, stating that it does not want to impose additional reporting burdens on businesses and noting the higher degree of complexity involved in reporting for ethnicity. Whereas there are only two legally recognized genders, there are many ethnicities and a degree of variance in how they are described. The new guidance recommends using the ethnicities recognized in the UK census to increase the comparability of data sets, but notes that care will be needed in how data is analyzed. For example, aggregating ethnicities into categories (such as ‘White’ and ‘Asian’) may ensure more statistical robustness if the total number of employees is small; aggregation may, in any case, be essential to ensure individuals cannot be identified, which would constitute a breach of special category data under the UK GDPR. In order to prevent any data breach, a minimum of 5–20 employees per category is recommended for internal analyses, and a minimum of 50 employees per category for published analyses. However, as the guidance also notes, aggregation may give rise to imprecision or mask important disparities altogether.
In general, UK law on pay gap reporting is beginning to diverge from EU law and may continue to do so. For example, although gender pay gap reporting is mandatory in the UK for public sector and large private and voluntary sector employers (defined as those with 250 or more employees), requirements within the EU are more stringent and will become yet more so under the Pay Transparency Directive, which was adopted by the Council of the EU on 24 April 2023. Under this directive, employees will have the right to request explanations of pay differences, to which employers are obliged to respond. Any differences must be justified by “objective and gender-neutral factors”; if they cannot be so justified, the employer must remedy the pay gap in cooperation with workers’ representatives, a labour inspectorate or an equality body.
The new EU legislation also imposes equal pay reporting obligations on employers; these have no counterparts in UK law. (Equal pay means equivalent pay for work of equal value; this is distinct from the pay gap, which is the disparity in average pay regardless of the equality of the work done. For example, a female employee who was paid less than a male colleague working in exactly the same role could have a case for unequal pay; but if the two roles were completely different, without any equivalence in value, there would simply be a pay gap.) In the UK, while employers are legally obliged to pay employees equally, there are no entailed reporting obligations. Under the new EU law, however, employers will be obliged to provide employees, labour inspectorates and equality bodies with information about the equality of remuneration in each “category” of worker; and objectively unjustifiable disparities of 5 per cent or more will trigger the obligation to carry out a “joint pay assessment” audit and remedy any differences. Employers will also be obliged to state the level of remuneration of all roles in advance of interview, without candidates having to make any request to do so.
How we can help
For advice on any aspect of mandatory or voluntary pay gap reporting, contact the team at Synchrony Law.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
Links to UK Government published guidance