UK: Government consults on mandatory ethnicity pay gap reporting

The Government has published a consultation on ethnicity pay reporting, making clear its position that this should become mandatory (possibly subject to a trial or phased approach with 'early adopters'). The consultation is open until 11 January 2019.

The consultation is a response to a one-year-on review of progress made following the 2017 McGregor-Smith independent review. The 2017 report recommended introducing a mandatory reporting duty, but the Government's preferred response at that time was to encourage voluntary reporting and monitor progress. Since then, both the Equality and Human Rights Commission and the House of Commons’ Business, Energy and Industrial Strategy Committee recommended consultation on a mandatory duty to report ethnicity pay gap data. Given the limited voluntary progress made in the last 12 months, the government has now agreed that a mandatory duty is required. (The review found that only 11% of employees had their ethnicity pay data collected; EHRC research published in August 2018 found that only 36% of employers collect and analyse data to identify any differences in pay and progression between different ethnic groups, and very few publish that pay gap data.)

The consultation notes that ethnic pay disparities may be caused in part by factors such as the concentration of certain ethnic minorities in low-skilled, low-paid jobs; under-representation in senior management roles; a lower age profile (as pay often increases with seniority); and possible 'double disadvantage' for certain groups of ethnic minority women. It notes that a consistent methodological approach would help employers to understand what their data is showing and to identify meaningful action to address the causes, although the Government is concerned not to add undue burdens on business. Although the Government is clearly conscious of the advantages of mirroring the gender pay gap duty, it has also identified two challenges particular to ethnicity pay gap reporting: the need to avoid adopting a methodology that could lead to substantial data going unreported due to the risk of disclosure of individual, personal information; and difficulties in collecting the data (the evidence suggests that there are low declaration rates given workforce concerns about how the data is used). The consultation therefore asks for views as to:

• the most appropriate method of reporting (one headline pay gap figure comparing average hourly earnings of ethnic minority employees as a percentage of that of white employees, several pay gap figures by ethnicity group, breakdown of ethnicity of employees within each £20,000 pay band or pay quartile)
• whether contextual factors such as gender and geographical and age variations should be included
• what steps should be taken to preserve confidentiality (eg, suppressing values based on a receiving fewer than a minimum number of responses)
• the size of employer required to report (the government's preference is employers with at least 250 employees, mirroring the gender pay gap duty)
• whether it should be mandatory to produce a narrative and action plan (this is currently only voluntary for gender pay gap data - although in the first year around 50% of employers published a narrative with some form of action plan)
• what ethnicity classifications employers currently use and the cost of changing to a standardised approach
• how best to improve ethnicity reporting rates by employees and how to reflect the reporting rate in the pay gap report
• what support should be provided to employers.

The one-year-on review found that there has been hardly any progress since 2015, with only two changes highlighted: a small increase in the proportion of employees with a workplace mentor, and a 'worryingly' significant reduction in the proportion of managers reporting they have a performance objective to promote equality at work. The review also identified a continuing need to make it easier to talk about race and religion at work and for more inclusive leaders and role models.  The Government has responded to these concerns by developing a new Race at Work Charter in collaboration with Business in the Community (BITC). Signatories commit to a set of principles and actions mirroring the review's calls for action and designed to drive forward a step-change in the recruitment and progression of ethnic minority employees.  As well as capturing ethnicity data and publicising progress, the actions include appointing an executive sponsor for race, board commitment to zero tolerance of racial harassment and bullying, making all leaders and managers responsible for workplace equality (eg through performance objectives), and supporting ethnic minority career progression.

Employers looking at this issue may find the BITC's Race in the Workplace resource portal useful. This includes links to a pocket guide on starting conversations about race as well as free training resources on unconscious bias.

A decision to require the disclosure of contextual factors or to make narratives and action plans compulsory could well herald similar changes to the gender pay gap duty in the fullness of time, though note that in September 2018 the Government indicated that it did not intend to review that duty until it had been in place at least 5 years. Employers should also be aware that this extension of the disclosure duty may be just the first of several in the longer term.  The Equality and Human Rights Commission and the House of Commons’ Business, Energy and Industrial Strategy Committee both recommended consultation on extending the reporting duty to disability pay gap data as well as ethnicity, while the Fawcett Society has called for the duty to be expanded to cover age, sexuality and part-time status too.