Ethnicity pay gap reporting – A walk across the minefield

As an employer and as a provider of payroll and HR solutions, Jeff Phipps is curious about ethnicity pay gap reporting. Here is why...

Jeff Phipps, Managing Director of ADP UK, examines the challenges faced by ethnic minorities and ‘classification’ in the UK, and its impact on ethnicity pay gap reporting.

Resolving inequalities in ethnicity pay gap reporting will have a £24bn positive impact on the UK economy according to the government-commissioned report by Baroness McGregor Smith “Race in the Workplace”.

One of the recommendations of that report was to put in place ethnicity pay gap reporting and the consultation closed for potential legislation in January 2019. As an employer and as a provider of payroll and HR solutions, I’m curious about this legislation, its practical implementation and its potential for success. I thought a good place to start was to understand the broader ethnicity challenges people face in the UK.

Does UK society have a race problem?

I’m not a professional researcher or academic that has spent years dedicated to researching this topic, and as a white, middle-aged man, I can’t claim to have any personal experience of racial discrimination in the workplace. At one level, you could, therefore, dismiss the content of this article. Still, I’d argue that ironically, I represent the typical business leader and consequently, a good acid test of whether I can appreciate the issue and be motivated to take meaningful action.

To help me write this article, I have thumbed through various Government reports and spoken to colleagues from different ethnic groups to gain a sense of their experience and views. In summary, I’d say my efforts to understand race challenges in the UK have proven challenging. It’s complicated, inconsistent, fluid and difficult to understand with factors such as history, culture and psychology all playing a part.

In the UK, 87% of people are white and 13% non-white, yet almost 97% of higher honours (dames and knighthoods) go to white people. If you are black, you are almost ten times more likely to get stopped and searched by the police, and that’s despite the rate declining considerably faster than searches on non-blacks.

White people are 50% more likely to hold a driving licence than blacks. This could be reflective of a higher proportion of non-whites living in cities where driving license rates are lower, but other factors such as relative wealth could be at play. Apart from Indian and Chinese, minorities are significantly more likely to live in deprived areas. In the case of Pakistani and Bangladeshi three times more.

If we turn to higher education, it appears that ethnic groups see that as a path to prosperity with every group getting a greater proportion than whites into university. However, once there, white students achieve higher grades and are more than twice as likely to get a 1st class degree than black students, and white graduates are 20% more likely to have a job 12 months after leaving university. These figures, taken directly from Government data, are alarming and point to significant societal issues and bias.

So clearly we need to measure ethnicity pay gaps?

This is where things start to get more complicated. The ONS diversity report showed that in 2018 Indian, Chinese, mixed and multi-ethnic workers all earned more than white people, with Chinese earning over 30% more than white British, whilst Bangladeshi earn 20% less. Yet 77% of white people are employed versus 65% from minorities. However, there are significant variations in male and female rates of people who are active in the employment market because of cultural differences. The pay gap narrows for younger people and when factors such as occupation and education are taken into account. The picture of ethnicity pay gap emerging seems to be more nuanced and impacted by a number of factors.

But ethnicity pay gap reporting will still highlight bias in the workplace?

Let’s start by asking how you identify yourself? If you identify as white British, then things are straight forward but if not then you could fall foul of the ten, five or two category definitions the Government use which is all based on skin colour and geography. There are lots of problems with all forms of categorisation. In essence, too few and the resultant data outputs have very limited use and too many, and the sample sizes can be small, resulting in erratic data points and risking individual identification. Even with the Government’s ten categories, people from Northern Ireland, Poland, France and South Africa could all identify as “white other”.

Technically, an ethnic group is a cultural subgroup within a larger population, but the definition of a cultural group is not limited to skin colour and geography and some people identify with multiple ethnic groups. Issues of antisemitism and Islamophobia have received prominent media coverage for an extended period, but the Government categories do not extend to ethnicity based on religious background and would therefore not permit the analysis of a pay gap on that basis.

It’s perhaps unsurprising that according to PWC, 95% of organisations have not analysed their diversity pay gap and 75% do not have sufficient data to do so or that of those companies already reporting they have found that around 50% of employees are unwilling to provide their ethnic identity voluntarily.

A major challenge is that employees in the UK cannot be forced to provide ethnicity information and the low response rates are often because of fears about the purpose of collecting the data. Even once your organisation has compiled data, ethnicity employee data is classified as a special category under GDPR creating significant compliance and legal considerations.

So where does that leave employers trying to do the right thing?

I’m left with an uncomfortable concern that even if the challenges of ethnicity pay gap reporting can be overcome, it leaves a question mark about other forms of diversity including social background, religion, disability, sexual orientation and age. Most recently, on the 3rd January, a tribunal ruled that ethical veganism is a philosophical belief that is protected by law against discrimination.

The complexities of gathering and reporting data bring serious concerns about the validity of ethnicity pay gap reporting which the Government acknowledges but fail to provide answers to. Gender pay gap reporting seems to have done little to accelerate the decline of that gap which begs the question of whether ethnicity pay gap reporting will suffer the same fate. I’m left to conclude that pay gap reporting is likely to be ineffective, creating an additional burden for good employers already committed to doing the right thing and being treated with disdain by those who fail to acknowledge an issue or act.

Government must not try to make this solely a business issue as it has attempted to do with gender pay inequality. For example, the Government cannot realistically expect business to fix the shortage of women in higher-paid technology jobs when barely one in nine computer science graduates are female. There are underlying societal, cultural, historical and psychological challenges that the Government must address. That does not mean that companies cannot and should not do more and a great starting point is to look at the other recommendations in Baroness McGregor Smith’s report including unconscious bias training, removing names from CVs and improved mentorship and reverse mentorship programmes.

Diverse organisations perform better and as business leaders, we have a responsibility to find great people and help them fulfil their ambitions and potential. The complexity of undertaking and interpretation of ethnicity pay gap reporting leaves me with significant doubts about its value. Based on my assessment of the issue, organisations should focus on education and proven techniques to limit or remove bias not just for ethnicity but for all forms of diversity.

Organisations should couple that practical execution with ongoing dialogue and involvement of their employees.

Finally, organisations should be transparent about their specific challenges, actions and outcomes with all their stakeholders.

Jeff Phipps, Managing Director of ADP UK

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