The importance of ethnic pay gap reporting and how to prepare

Over the last 18 months, it is probably safe to say that the UK employment market and the world of work has been upended like never before in peace time. We know there is more to come with a likely spike in redundancies with the end of the Coronavirus Job Retention Scheme in a matter of weeks at the end of September, and elsewhere in the labour market there are crippling shortages of workers.

What has become abundantly clear, and alas, most of us are not surprised by this, is that women and non-white, workers have been the most financially hit and disproportionately negatively affected during this time. We also know that statistically, these same groups tend to do more of the low paid and less secure work. Disabled workers have also been badly hit.

If there is a bright side here, it is that perhaps like never before, the equality agenda is front and centre in so many aspects of our lives, and there is a real opportunity for progressive employers and their HR teams to drive and moreover, capitalise on, achieving greater equality in the workplace.

Although far from perfect, the mandatory publication, by employers of 250 employees or more, of comparable salary and bonus data under the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 has had an effect, albeit that according to the March 2021 PWC report on the impact of Covid-19 on women in work, COVID-19 has set gender pay equality back potentially decades. It is therefore more than likely that the same will happen in race equality terms.

But even before COVID-19 hit, the Confederation of British Industry (CBI), TUC and Equality and Human Rights Commission were calling on the government to introduce ethnic pay gap reporting to help better understand and address pay disparities.

In June 2020, on the back of the anti-racist demonstrations around the globe, the UK government pledged to establish a commission to investigate all aspects of racial equality in the UK.  Despite objections from some individuals who maintain that there is flimsy evidence of institutional racism in the UK, COVID-19 has highlighted further those inequalities in the workplace as being very real, and especially so for non-white women.

We don’t yet know whether the reporting will be in a binary white/ non-white classification, or whether we should be looking at a more detailed analysis – which is where the male/ female reporting regime stops being helpful. There is naturally concern that data is skewed the more granular it becomes, so gaps “look” bigger – or indeed smaller – depending on classification of data.

We also have a vast swathe of predominantly white males at the top remuneration packages in LLP and like structures, especially in ‘traditional’ blue collar professions, where Member’s earnings are excluded from gender pay gap reporting because they are not employees – there is no indication that this will change.

Despite the limitations, and although not yet mandatory, some employers are preparing to voluntarily report their ethnic pay gap data on the basis that the framework is already in place for gender pay reporting, and it seems likely that the same formulas for mean and median hourly rate of pay and bonus will be adopted.

But this is not without challenge to HR professionals, and as it seems likely that mandatory reporting will follow, now is a good time for affected companies, and those with genuine desire to achieve equality, to prepare.  For HR professionals who will bear the responsibility, the most obvious challenges are resourcing, capturing accurate data, the potential complexity of that, and managing any reputational harm.

It is therefore important for HR functions to start to address with their businesses the need for resourcing, initially in data collection and analysis, and extolling the clear business case for getting that right whereby ultimately those resources will, literally, reap dividends.

The benefits of producing clear data, and which can be trusted, is the harnessing of transparency which an increasingly aware talent pool are looking for: we live in corporate world now where window dressing with smudged data and giving the loudest lip service to the equality agenda to impress clients, customers, investors and the public, whilst not walking the walk, is easily and very publicly called out by dissatisfied employees and associates, and who will ultimately look for a place to work/ do business with, which reflect their own view of how the world of work should be, taking their talent and potential with them.

So, the internal message from HR teams whilst collecting data, and then after publishing it, is incredibly important, including that the business is genuinely striving for a representative internal culture that promotes pay equality regardless of race.

The message has to match the data – there is no point fudging either – and we know loyalty and productivity are better harnessed by honest and regular communications which reflect the reality of the workplace.

At this stage HR teams will need to start planning, including:

  1. Getting resources in place to accurately collect and analyse hourly pay and bonuses by reference to ethnicity;
  2. Agreeing with the business the internal communications and resources (including training) needed to engage employees with the process – don’t be defensive about this – reporting is going to happen, some of the results may not be pretty, but consider the messages you will be able to promote in the longer term when the gaps are closing and your data reports that;
  3. Reviewing recruitment and development policies if it has been a while, and renew management training on diversity and equality policies – walking the walk brings its own benefits;
  4. Considering the internal messaging after the data is published, and beyond that: employees are well placed to feed back on what, practically, the business could be doing to drive equality – ask them.

HR professionals are the best placed people to do this: they know how to communicate with clarity, and they know how to engage employees for the long term, including delivering on promises to gradually address real challenges which pervade our lives in and out of work.