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Government consults over ethnicity pay

  • United Kingdom
  • Employment law

11-10-2018

Since publishing its Industry Strategy in 2017, the Government has aspired to improve equality in the workplace, particular focus having been placed recently upon pay differentials. Through today’s consultation, the Government seeks to arrive at a process which ensures reporting of ethnicity pay is not simply a half-hearted disclosure exercise but is one which drives meaningful action and builds on lessons from gender pay reporting.

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 companies 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 are voluntarily collecting ethnicity pay data and a belief that reporting will lead to meaningful and targeted action.

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”, therefore, 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.

Which employers?

Current focus of the consultation is upon employers in England, Wales and Scotland with more than 250 employees, a threshold which would mirror current provision regarding gender pay gap reporting. However, this question too is put out to consultation to assess whether more organisations should be brought in.

Timing

The consultation closes 11 January 2019 so 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.

Methodology

As for how the mechanics of ethnicity pay reporting will operate, the consultation poses various options to employers including whether following current gender pay reporting would be helpful or data might be published instead according to pay bands or average hourly earnings.

Research nonetheless suggests that, 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, starting with educational opportunities, etc., 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, Baroness McGregor-Smith 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 interpretation and understanding of the pay data produced. An issue we foresee is that many employers will not be aware of these contributory factors nor necessarily have access to information about them. If this step is proceeded with therefore, the Government needs to be cautious in defining the scope to make it easy for employers.

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 comment on which classification employers currently use for their data purposes.

Comment

One of the principal reasons why question 1 of the consultation concerns employers views on benefits is that there is no doubting 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 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. In the latter respect, 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.

A not insubstantial part of the consultation focuses on the options for employers in terms of what they can do to improve employee perception and engagement with the collation of ethnicity data. It 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.

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 that takes, 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 rest here and we anticipate further proposals and measures in due course, including the reporting of work opportunities and pay for those with a disability.

The Consultation closes on 11 January 2019. Ethnicity Pay Reporting: Government Consultation

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