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Ethnicity pay gap reporting: A guide for employers in the UK

Did you know that only 13 of the UK’s top 100 listed companies report their ethnicity pay gap? In the era of movements like Black Lives Matter and #MeToo, these figures (and unequal pay in the workplace) have led the Chartered Institute of Personnel and Development (CIPD) to call for a mandatory ethnicity pay gap reporting (similar to the rules in place for mandatory gender pay gap reporting) to apply to all large employers from April 2023. To stay one step ahead of the curve, this Pacific Prime UK article is your guide to the what, why and how of ethnicity pay gap reporting. 

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Defining ethnicity pay gap reporting

In simple terms, ethnicity pay gap reporting is when employers publish data about their employees’ pay across different ethnicities so that assessments can be made on fairness and equality. At present, the lack of legislation means that UK employers have flexibility on what to include in their voluntary ethnicity pay reports, and it’s challenging to make any meaningful cross-employer and cross-sector comparison. In the absence of legislation, the CIPD has recommended that ethnicity pay gap reports should have the following components: 

  • Uniform statistics to report pay by ethnicity (please see page 8 of the CIPD report for further details)
  • Explanation of the nature and causation of any pay differentials
  • Action plan of initiatives defined to reduce and remove any such gaps over time

Why ethnicity pay gap reporting is important 

In a multicultural society like the UK, fair and equal pay across ethnicities is what employers should strive towards from a moral perspective. As Peter Cheese, chief executive of the CIPD, said in a press release

“Mandatory reporting of data, and the associated narrative that shows understanding of the data and the actions being taken to improve, for both ethnicity and gender pay, will help create fairer workplaces and societies and kickstart real change.” 

 

He also added that the gender pay gap reporting has driven greater transparency and accelerated progress, and that the same is needed for ethnicity pay reporting. This is an urgent matter in the COVID-19 context, which has highlighted growing racial inequalities.

Benefits of ethnicity pay gap reporting for employers

While the moral case is strong, employers should know that mandatory ethnicity pay gap reporting, and the increased fairness and equality across ethnicities that follows, will reap a number of tangible benefits. Here are some of them:

1. Talent attraction (and retention)

Talented employees from both ethnic and non-ethnic minority backgrounds will be attracted to (and more likely to remain at) organisations that conduct mandatory ethnic pay gap reporting, and prioritise fairness and equality in the workplace. This drives value-driven outcomes for the organisation and lower costs associated with a high turnover rate.

2. Employee wellbeing

As a by-product of prioritising fairness and equality in the workplace, employees of all backgrounds will feel welcomed and valued. In contrast to a toxic workplace, this will lead to happier and healthier employees. As we know, employees’ state of mind has direct correlation to their motivation and productivity levels, which ultimately benefits the organisation. 

3. Collaboration and innovation

Employees of different backgrounds working collaboratively results in exchange of unique ideas and perspectives, which is an environment that is conducive to innovation. Given that an organisation’s customers are likely to be diverse, having a diverse team working together can prevent and avoid PR disasters based on distasteful messaging. 

Bonus: What’s more, prioritising ethnicity pay gap reporting before any mandatory legislation comes in place will also help employers stay ahead of the curve and put them in the league of forward-thinking organisations. 

6 tips for ethnicity pay gap reporting 

If you’re convinced that pay fairness is the way to go, here are 6 tips to conduct ethnicity pay gap reporting like a pro. Based on CIPD guidelines, these tips are designed to maximise the opportunities and minimise the challenges of ethnicity pay gap reporting:

1. Conduct ethnicity pay gap reporting in tandem with gender pay gap reporting, but recognise the differences between the two 

It makes sense to conduct ethnicity pay gap reporting as an extension of existing gender pay gap regulations for efficiency purposes. This means using the same statistics, definitions and timeline of data collection and reporting. That being said, there are differences between the two, most notably that a larger number of categories will be required beyond the male/female groupings on gender.   

2. Don’t overlook ethnic representation when conducting ethnicity pay gap reporting 

In addition to the difference in pay between ethnicities in the same type of role, it’s also vital to consider ethnic representation in each type of role. This is because there is underrepresentation of ethnic minorities (compared with white employees) in senior management roles, and overrepresentations in low paid roles. As such, employers should also report on their ethnicity group representation breakdowns in each quartile, as well as their pay gaps by quartiles. 

3. Stick to two metrics to avoid overcomplication, and prioritise simplicity and clarity

While there are many metrics that can be used (please see page 8 of the CIPD report for further details) to report on the ethnicity pay gap, focusing on two key metrics is a good idea to avoid overcomplication. Moreover, doing so will also ensure that the organisation doesn’t lose sight of the narrative and action plan. The following two metrics should be used: “median ethnicity pay gap” and “mean ethnicity pay gap”. 

4.  Use the data to come up with measurable solutions and focus on taking action 

While data collections and analysis can provide valuable insight in their own right, they need to be accompanied by effective actions to address any ethnicity pay gaps. Given this, narrative reports to explain pay gaps and action plans designed to close them are just as important as the data itself. The focus should remain on using the data to come up with solutions, whereby the end-goal can be measured. 

5. Continually evaluate and optimise the approach to ethnicity pay gap reporting

Employers may have vastly different amounts of experience in and resources to conduct ethnicity pay gap reporting and address any ethnicity pay gaps. It’s important to understand that change won’t occur overnight, but will take sustained actions over a number of years. In light of this, employers should begin wherever they can, as well as continually evaluate and optimise their approach. 

6. Minimise administrative work for HR teams, but not at the expense of a meaningful analysis 

At the end of the day, employers’ ethnicity pay gap reporting efforts should minimise administrative work for HR teams through a report that is simple, clear and easy-to-produce. Simultaneously, the report should also be sufficiently detailed and meaningful to highlight the exact location and nature of any gaps, and indicate how they have been caused and how they might be closed. 

Employee benefits for a diverse and inclusive workforce

As we’re heading towards a workforce that is increasingly diverse and inclusive, traditional, one-size-fits-all employee benefits will soon become obsolete and flex(ible) benefits will become highly coveted. Unlike traditional benefits, which may or may not align with employee needs and wants, flex benefits allow employers to offer a variety of benefit options for employees to create a customised benefits plan.

Further reading: To learn more about all things flex, check out the complete guide to flexible benefits. 

Get in touch with Pacific Prime UK today!

As a global health insurance brokerage and employee benefits specialist, Pacific Prime UK understands the value of diversity and inclusivity goals in the workplace, and has over two decades of experience helping companies of all sizes and industries design and implement the right corporate insurance and employee benefits solutions to align with their organisational goals. 

To learn more about our tailored, technology-driven approach and wide range of solutions (including flex benefits), please arrange a free consultation with a member of our corporate team today!

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Content Creator at Pacific Prime UK
Suphanida aims to demystify the world of insurance by creating informative and engaging content. As a wordsmith, she spends the majority of her day writing and editing website content, blog posts, in-depth guides, and more.

Outside of work, Suphanida enjoys travelling to new places and immersing herself in different cultures.
Suphanida