Ethnicity pay gap reporting guidance

In March 2022, the government confirmed it would not introduce ethnicity pay gap reporting as a mandatory requirement for businesses, but it did promise to publish guidance for those that wanted to report voluntarily. After being in the pipeline for over a year, the government finally published its guidance on ethnicity pay gap reporting on 17 April 2023 to help employers produce effective and consistent reports.

Many employers choose to report voluntarily, to show their commitment towards achieving genuine equality, diversity and inclusion at all levels, and the actions they are taking to do so.

The ethnicity pay gap shows the difference between ethnic groups’ average pay across an over a period of time. The process for compiling an ethnicity pay gap report is largely similar to the requirements for gender pay gap reporting, which is a legal requirement for employers with 250+ employees on the snapshot date.

But, instead of the comparison being between two groups (male and female employees), employers will have to determine how to group employees based on ethnicity. The guidance recommends following the Census for England and Wales (or Census for Scotland) ethnicity groupings, as this provides a ready-to-use set of tested and legally sound questions. Employers should also report on those who opt to “prefer not to say” what their ethnicity is and those who did not disclose their ethnicity (e.g. didn’t respond to/complete an equal opportunities survey, or similar form).

The new guidance is split into five main parts: introduction and overview; understanding and reporting data; collecting ethnicity data; preparing payroll data; and making your calculations. Similar to gender pay gap reporting, the guidance recommends employers calculate the percentage of each ethnic group in each hourly pay quarter; the mean (average) and median ethnicity pay gap using hourly pay; the mean (average) and median ethnicity pay gap for bonus pay; the percentage of each ethnic group receiving bonus pay; and the percentages of employees in different ethnic groups in your organisation.

Employers can choose how and where they wish to publish their ethnicity pay gap report. Some may wish to use it for internal analysis, to consider in the development of future organisational actions and goals. Others may wish to publish it on their intranet or internet sites. Regardless of how the information is released, it’s useful to also include a supporting narrative, which outlines the measures the business will take to close existing ethnicity pay gap.

An employer’s action plan for tackling the ethnicity pay gap should closely align with their wider equality, diversity and inclusion (EDI) strategies. Doing so keeps the business on track and ensures all decisions are made with consistency and transparency. To assist with this, organisations may wish to facilitate ethical leadership.

Profitability and efficiency tend to be the main influencing factor in decision making but businesses can reap the rewards of creating an ethically focused culture. This prioritises managing teams through reference to core values and helps create a standardised EDI framework.

However, to ensure the most benefit, organisations must foster a culture of EDI beyond an updated policy or annual awareness day. To do this, equality and inclusion practices should be ingrained into daily activities and regularly communicated to workforces and stakeholders.