On 31 March, 2021 the Commission on Race and Ethnic Disparities (which was set up by the Prime Minister in 2020 to identify racial disparities and inequalities in Britain and ways to address them), published its first report in which it made a number of recommendations.
Although it had been expected that the Commission would call for mandatory ethnicity pay gap reporting, it only recommended voluntary reporting, suggesting that organisations accompany their data with diagnosis and action plans.
It's no surprise then that, in the government's response to the consultation it issued on mandatory ethnicity pay gap reporting, it confirmed that mandatory ethnicity pay gap reporting will not be introduced.
The government states in its response that mandatory reporting "may not always be the most appropriate mechanism for every type of employer" and employers should use the guidance on voluntary ethnicity pay gap reporting which was published in April this year.
The consultation highlighted difficulties in designing a methodology for ethnicity pay reporting. Although most respondents supported reporting ethnicity pay information by pay quartiles (which mirrors the gender pay gap methodology) the government concluded that it would not be appropriate for it to mandate a particular methodology.
Most businesses were broadly in favour of action plans in situations where reporting revealed unjust racial disparities: the government states that it believes that employers should be free to tackle barriers ethnic minority employees may face in their own organisation, but that some good practice guidance may be helpful.
The government states that it is "determined to take steps to help employers address unjust ethnic disparities in the workplace, recognising that disparities emerge for a complex range of reasons and that not all disparities are as a result of discrimination". It remains to be seen what this will be, but in the meantime employers can refer to the guidance on voluntary reporting mentioned above.
The guidance explains how employees' ethnicity data can be collected, how to make ethnicity pay calculations, analysing and understanding the results of these calculations, and developing an action plan to address any identified disparities. Much of the guidance, including the methodology for the calculations, mirrors the approach set out in the guidance for gender pay gap reporting. However, the guidance points out that ethnicity pay reporting is much more complex than gender pay reporting. While gender pay analysis only involves a comparison between two groups, ethnicity pay analysis can potentially involve many more ethnic groups.
The guidance notes that employers should carefully scrutinise and explore the underlying causes for any pay disparities. It recommends that, where pay differences arise, further analysis is recommended to help employers understand the causes and decide whether further action is needed and, if so, to target this more effectively.
The guidance points out that pay disparities may be due to a number of reasons not all of which will be discrimination. For instance, lower pay among a particular ethnic group may be because that group disproportionately applies for lower paid, more junior positions in an organisation. However, it could be because the company does not provide adequate progression opportunities for people from that ethnic group. It will, therefore, be up to employers to do further work or collate other available data, such as staff surveys and data on recruitment and progression, to identify and understand the underlying causes.
