Government says no to compulsory ethnicity pay gap reporting

The Government is set to release voluntary guidance this summer

The Government has decided not to make ethnicity pay gap reporting compulsory for employers and, in doing so, has seemingly reversed a previous commitment.

It was largely assumed that ethnicity pay gap reporting would one day follow gender pay gap reporting compliance that came into force for companies with over 250 employees in 2017.

It seems the Government has now backtracked, as highlighted in its “Inclusive Britain” policy paper published on March 17. However, they have said they will publish voluntary guidance later this year.

The Government says no but will offer voluntary guidance

Government guidance, set to be released this summer, is expected to include advice on data collection and employee confidentiality and help employers use data about specific ethnic groups, which within a racial group can have different outcomes.

The guidance will include advice on producing a diagnosis and action plan and highlight the reasons for and steps to address ethnic pay disparities. This will consist of case studies on firms already engaged in ethnicity pay gap reporting.

The Government’s conclusion on ethnicity pay gap reporting echoes that of the controversial Sewell report, which stated that ethnicity pay gap reporting should remain voluntary due to unreliable sample sizes, wherein some employers may have too few ethnic minority employees to report effectively.

In the report, they said: “If an employer with 250 employees (the threshold suggested in the 2018 BEIS consultation on ethnic pay gap reporting) reports a gender pay gap, on average they will be comparing 125 men with 125 women. If they report an ethnicity pay gap as well, on average, they will be comparing 225 White employees with 25 ethnic minority employees. Any findings from such a comparison will be unreliable and make it impossible to look at the workforce stratified by the 18 ONS ethnicity classifications.”

Another purported reason that the Government has not made ethnicity pay gap reporting mandatory is that it could add to the already reporting heavy burdens of businesses as they recover from the pandemic.

The decision by the Government follows years of a lack of clarity over their stance on ethnicity pay gap reporting. A pledge to introduce ethnicity pay gap reporting was seen in ex-Prime Minister Theresa May’s party manifesto before the 2017 general election. It wasn’t noted in Boris Johnson’s a few years later.

A consultation on the matter was published in October 2018 and closed in January 2019. Since then, the Government has stalled on drawing conclusions from the consultation. In 2021, despite a parliamentary debate on ethnicity pay gap reporting, the Government still didn’t reach a conclusion.

Are firms starting to report anyway?

Despite no legal obligation to publish ethnicity pay gap figures, more businesses are doing so voluntarily, signalling a noticeable shift in organisations taking accountability on ethnic diversity and inclusion.

According to recent parliamentary figures, the number of employers publishing their ethnicity pay gaps has increased from 11% in 2018 to 19% in 2021. While these figures aren’t yet in the majority, they show significant growth of companies reporting their ethnicity pay gaps in a relatively short space of time.

So, despite the lack of compliance legislation on ethnicity pay gap reporting for employers, perhaps social pressure will continue to play a positive role in getting more firms to start.

David Whitfield, CEO and Co-Founder of HR DataHub, believes that employers could do more to successfully report their ethnic pay gaps. He says: “Not only can we see that ethnicity pay gap reporting figures are incredibly low, but they are also wildly inconsistent. New data in our Ethnicity Pay Gap Database shows that just 64 organisations reported their ethnicity pay gap in 2021, down from 129 in 2020.

“In addition, the number of companies that reported in 2021 (64) has also fallen below the level that reported pre-pandemic in 2019 (98). Perhaps even more surprising is that only a mere four companies have reported their ethnicity pay gap every year since 2018.”

He concludes: “The Government’s decision not to introduce mandatory ethnicity pay gap reporting is not just disappointing, it is a blow to the deep, ongoing work being done to create an equal and fair world. It is clear that without pay gap reporting legislation, companies will largely not report.

“Given the early success we have seen with mandatory gender pay gap reporting, despite the inadequacy of the current gender pay gap calculation to meaningfully measure equal pay, the Government’s latest decision is mystifying.

“Let’s be clear; equality is not up for question. The lack of any legislation around ethnicity pay gap reporting doesn’t just allow organisations to escape responsibility, but the lack of formal guidance also makes it tricky for companies to know exactly what to do.”

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