Last year, the Government expressed a preference for voluntary, business-led ethnicity reporting. But as only a small number of businesses have published ethnicity pay gap data, and comparability is limited as they used different methodologies, the government has decided that "stronger action is needed to drive change". So it has launched a consultation asking for views on taking forward its manifesto commitment that large employers should publish ethnicity pay data.

What will companies have to do?

The government believes ethnicity pay reporting should only apply to companies with 250 or more employees, although the consultation seeks views on whether this threshold is appropriate.

The Government's proposed options on the type of ethnicity pay information to be reported are:

  • One pay gap figure comparing average hourly earnings of ethnic minority employees as a percentage of white employees
  • Several pay gap figures comparing the average hourly earnings of different ethnic groups as a percentage of white employees
  • Ethnicity pay information by pay bands or quartiles, showing the proportion of employees from different ethnic groups by pay bands or quartiles

The government recognises it must seek to achieve a balance between minimising the burden on employers and enabling meaningful action to be taken. With that in mind, the consultation also asks for views on whether reports should include wider reporting obligations, such as:

  • Contextual data to help ensure ethnicity reporting provides a true and fair picture - such as geographical, age and gender variations
  • A requirement to publish a narrative or an action plan to address any disparities in ethnicity pay that are reported

A significant issue that does not arise in gender pay reporting, but does here, is data classification. Analysing ethnicity data can be complex - the issues include that identifying as a member of a particular group can be subjective, and sometimes an individual may associate themselves with more than one ethnic category, or they may not associate with any category.

Another challenge that the consultation recognises is around collecting ethnicity data, given that there is no legal obligation on individuals to disclose their ethnicity, or on employers to collect this information. In view of this, it seeks views on:

  • Which, if any, standard ethnicity classifications employers currently use for reporting
  • The most effective way for employers to increase the level of employees' ethnicity self-reporting
  • How the level of ethnicity self-reporting should be reflected in the information reported by employers

There are also data protection issues associated with ethnicity pay reporting. Any information relating to an individual's racial or ethnic origin is sensitive personal information, and classified as a special category of personal data. If employers collect such data, they need to take care to ensure the anonymity of their employees. It would be difficult to ensure their anonymity however if the number of ethnic minority employees in a business is small as these individuals will be easily identifiable.

What does this mean for employers?

The consultation paper does not indicate when ethnicity pay reporting is expected to come into force. The Government is considering implementing a trial or phased approach in which it works with some employers in the public and private sectors to test different approaches before mandatory reporting is introduced.

In the meantime, employers need to continue to focus on paying everyone fairly, and making sure that their pay systems are as easy to understand (and to explain) as possible. As we have already seen with gender pay reporting, individuals are becoming more and more ready to ask questions – and this trend will continue in any event – but will only be increased by any further reporting requirements (whether that is race reporting, social background reporting, disability reporting - or any other kind of reporting which may be introduced at some point).

This consultation raises a number of questions which go to whether ethnicity pay reporting can work in practice and whether it can enable meaningful change to take place. For example, how practicable will reporting be if individuals do not want to disclose their ethnicity? What if the number of ethnic minority employees is so small that if employers are to provide any meaningful data, they cannot preserve the confidentiality of individuals?

Employers can review the consultation paper, and submit a response if they wish to. The consultation closes on 11 January 2019.

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