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Education HR e-briefing - Government consults over the introduction of ethnicity pay reporting

  • United Kingdom
  • Education - Briefings

12-10-2018

As part of its Industry Strategy, published in 2017, the Government has aspired to improve equality in the workplace, including a focus upon pay differentials. One development that has been mooted for a while now is the possible extension of the existing requirement to publish gender pay information to also cover ethnicity. The Government has now launched a consultation exercise about the introduction of a mandatory approach to ethnicity pay gap reporting. The consultation, which asks 11 questions and can be found here, closes on 11 January 2019.

Why is the Government acting?

Population census figures show that Britain is increasingly ethnically diverse, yet labour market participation, earnings and progression vary widely between ethnic groups. The Government has a stated aim to break down the barriers that hold back under-represented ethnic groups, on the grounds of fairness and because it makes economic sense for employers and the country.

Importantly, beyond societal demands resulting from an increasingly diverse UK population, there is an increasing body of research as to the positive impact inclusion and diversity has on business growth and performance. A study by McKinsey, for example, found that organisations in the top-quartile for ethnic and cultural diversity amongst their executive teams were 33% more likely to have industry-leading profitability. There are real and tangible benefits to employers, therefore, in engaging with diversity issues, including differentials in pay.

Since 2016, the Government has been working with Baroness McGregor-Smith to identify the barriers faced by people from ethnic minorities in the workplace and consider what could be done to address them. Transparency is acknowledged as a vital first step to progress on any such issues and one of Baroness McGregor-Smith’s key recommendations therefore, was the introduction of mandatory ethnicity pay reporting by employers.

The Government has now decided to act, given that so few employers nationally are voluntarily publishing ethnicity pay data and it believes that reporting will lead to meaningful and targeted action. The foreword to the consultation states that reporting ethnicity pay information would enable employers to identify (and then tackle) barriers to creating a truly diverse workforce and, provided there is a consistent approach to reporting, they can also benchmark and measure their progress by comparing themselves to other employers and learn from them.

The consultation nonetheless recognises that pursuing mandatory reporting of ethnicity pay brings with it considerable complexity and sensitivity. Indeed, as the consultation questions themselves reveal, collation of data on the ethnicity of employees is patchy, varied and difficult to come by. Despite a clearly expressed objective that the pay reporting process should be “proportionate and not cause undue additional burdens on business”, it is also apparent that true transparency can only be achieved if there is sufficient consistency in approach and in the base data organisations work from and, to this extent, there is much groundwork to be done and decisions to be taken.

Which employers?

The current focus of the consultation is on employers in England, Wales and Scotland (as employment and equality law is devolved in Northern Ireland). Although the McGregor-Smith report recommended a threshold of 50 employees, the Government believes that this would impose too great a burden on business and therefore favours a threshold of over 250 employees, mirroring the current provisions regarding gender pay gap reporting. This would therefore include most education institutions. However, this question is put out to consultation with options including those with employee numbers over 50, over 250 or over 500.

Methodology

The consultation recognises that the mechanics of ethnicity pay reporting raise more complicated issues than for gender pay gap reporting. Although the consultation invites views on the extent to which employers would find it helpful to mirror parts of the gender pay gap methodology, it also floats various options including publishing:

• One pay gap figure comparing average hourly earnings of ethnic minority employees as a percentage of white employees

• Several pay gap figures comparing average hourly earnings of different groups of ethnic minority employees as a percentage of white employees

• Ethnicity pay information showing the proportion of employees from different ethnic groups by £20,000 pay bands or by pay quartiles

Whilst some of the complex reasons for differences in pay and career opportunities amongst minority ethnic employees are similar to those which exist for differences based on gender, research suggests that these are even more nuanced in this arena. The Government believes that ethnic pay disparities do not typically arise from people from different ethnicities being paid less than those from a white background for doing the same job. Rather, the causes reflect more indirect factors. For example, people from some ethnic minorities are more likely to work in low-skilled, low-paid jobs and, once in employment, they progress less far and earn less than their white counterparts. Other issues such as age, geography, gender and education also play a role. The extent to which overt and unconscious bias is effecting pay disparities is “difficult to measure”, according to the Government. However, the McGregor-Smith report notes that there is a “lingering bias within the system which continues to disadvantage certain groups.”

To address these difficult and potentially sensitive issues, the consultation invites respondents to comment on what contextual data might additionally be disclosed to aid the interpretation and understanding of the pay data produced.

Precisely what data is collected and used to assess pay differentials is clearly fundamental to the reporting process. An important aspect of this is the classification if ethnicity itself, of which there are various recognised ONS standards. The consultation accordingly invites comments on which classification employers currently use for their data purposes (for example the 5 or 18 standardised ONS ethnic classifications from the 2011 census or the 5 or 16 standardised ONS ethnic classifications from the 2001 census).

Narrative and action plans

The Government points out that there is no requirement under gender pay gap reporting, for employers to publish a narrative or action plan, although, in the first year of gender pay gap reporting, around 50% of employers have published a narrative with some form of action plan.

As far as ethnicity pay reporting is concerned, the Government believes that a narrative could be useful to explain the quality of pay reporting, particularly declaration rates. It also points out that some commentators have argued that it should be mandatory to publish action plans alongside any ethnicity pay reporting to make clear to current and potential employees that the employer is committed to taking action to address disparities.

As a result, the consultation asks whether employers that identify disparities in their ethnicity pay in their workforce should be required to publish an action plan for addressing these disparities.

Timing

As the consultation closes on 11 January 2019, we are several months away from knowing the timeframe of introduction and what reporting might look like. The consultation also touches on pilot projects the Government is already supporting, such as the reporting of ethnicity and pay by the Civil Service, a process which will be used to trial the methodology arrived at through the consultation. It seems likely, therefore, that it may be 2020 at the earliest before mandatory reporting takes effect.

Comment

One of the principal reasons why question 1 of the consultation asks for views on the main benefits for employers in reporting their ethnicity gap, is that there is no doubting that the reality of reporting ethnicity pay will require significant effort and buy-in from employers. It is believed that some 60% of larger employers collate some data as to ethnicity. However, even amongst those, the nature of the data collected and the degree of participation by employees is known to vary considerably, with some employers who collect data reporting declaration rates of below 50%.

Many employers report reticence amongst their staff in sharing such data, being suspicious of its purpose or intended use, reluctant to identify themselves with a particular ethnic group or perceiving such questions as intrusive. Therefore, the consultation asks for employers views on the most effective approaches to improve employee self-reporting or declaration rates and how self-reporting or non-disclosure rates should be reflected in the information reported by employers.

The consultation also enquires whether the type of ethnicity data collated should be standardised. Surely that is essential if the reporting process is to be meaningful. But what that may also mean is that some employers who already go to some lengths to collate such data will need to revise their approach. For the remainder of employers, a whole raft of policies and procedures will need to precede pay reporting, from what ethnicity data is collected, how and the steps taken to reassure and encourage staff that sharing their details is a good thing. Issues of data protection will also need to be considered.

What the consultation furthermore re-enforces is the Government’s commitment to progress its Industrial Strategy aims. With the approach of Brexit, in whatever form, recruiting and retaining workers will be more critical than ever. Ensuring as many of those workers as possible reach their potential is an important facet of this challenge. To that end, it seems unlikely that Government strategy will end here and we anticipate further proposals and measures in due course, including reporting on work opportunities and pay for those with a disability.

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