Ethnicity pay gap reporting: everything you need to know

Calls to action don’t get much clearer than this: the CIPD wants to make ethnicity pay gap reporting mandatory for businesses as soon as 2023.

But you don’t have to wait for new legislation to look at, and publicise, your ethnicity pay gap data. There are plenty of good reasons to start right now.

In this article, we’ll help you get up to speed on the type of information you will need to report, why ethnicity pay gap data is so important, and how reporting your ethnicity pay gap will transform your organisation for the better.

What is ethnicity pay gap reporting?

Let’s start with a definition. According to the ONS, the ethnicity pay gap is “the difference between the median hourly earnings of the reference group (White or White British) and other ethnic groups as a proportion of average hourly earnings of the reference group”.

This is the same way that the gender pay gap is calculated. Companies are already used to gender pay gap reporting so, in principle, the adoption of ethnicity pay gap reporting shouldn’t be a difficult step.

There are some important differences, however.

What do you need to include in an ethnicity pay gap report?

Deciding which categories are the most important and helpful to report — that’s going to be one of the biggest challenges that organisations face.

Using an umbrella term, such as BAME, may not offer the level of detail required to help you assess true racial equity in your workplace. If you have too many categories, on the other hand, your datasets may be too thin to reveal meaningful comparisons.

The CIPD suggests that organisations should go substantially beyond the minimum information required, and that they use this data to produce an action plan to accompany their reporting data.

They recommend that an ethnicity pay gap report includes the following statistics:

• The median ethnicity pay gap
• Mean ethnicity pay gap
• Median bonus gap
• Mean bonus gap
• Bonus proportions
• Quartile pay bands

Now, this might seem like a lot of data collection, but it’s actually relatively straightforward. Having all of these statistics can help you to really pinpoint where you have issues with your ethnicity pay gap — and identify when you’ve made progress.

They also recommend that organisations include information about ethnic diversity within their teams, and also the proportion of employees who have declined to state their ethnicity. This can help to put the rest of your data into context.

The power of ethnicity pay gap data and racial equity in the workplace

We’ve said this before, but we’ll say it again: the only way to create change is to understand the root of the problem at hand. Data is the only way to reveal the true state of pay equity in your organisation.

And, as is often the way with truthful transparency, revealing your business’s inadequacies can make senior leaders uncomfortable. You may well face resistance when it comes to publicising the results.

If leaders can claim the risk of lost competitive advantage as a reason not to share diversity data, then imagine what some could come up with as an excuse to keep the pay gap secret?

Against this backdrop of hesitancy, it’s important to remember — and reaffirm — the opportunities that ethnicity pay gap reporting presents. It’s a chance to bring all of the information to light, revealing who is being held back and exactly where the equity differences are.

Without accurate and up-to-date data, organisations are left guessing about where to channel their DEI efforts and how to focus their diversity budgets. Collecting ethnicity pay gap information can help guide leaders toward prioritised objectives and optimised resources to improve racial equity within their teams.

Collect it, share it

Gathering the data isn’t enough. Reporting your current ethnicity pay gap, and highlighting your progress, is another important part of improving racial equity. Making information about your ethnicity pay gap public has two main purposes when it comes to improving racial equity in the workplace.

Firstly, it provides an objective measure of the problem. Because so much racial bias is implicit and unconscious, it’s far too easy for managers to assume that there is no systematic bias: “That might be a problem in other organisations, but not at ours — we are inclusive hirers”. The ethnicity pay gap demonstrates the flaw in that argument.

With the ethnicity pay gap figures in hand, leaders and managers can have an accurate idea of the scale of the problem and whether their efforts are leading to meaningful improvements.

Secondly, making these figures public creates a real sense of urgency and accountability. Companies that report their ethnicity pay gap are highly motivated to show improvements the following year — especially if the gap is wider than they had expected.

Particularly while reporting is still voluntary, organisations that choose to report their ethnicity pay gap are developing a reputation for transparency and having a commitment to racial equity.

This may also bring more diversity into your talent pipeline and improve retention of ethnic minority talent throughout your workforce.

Global law firm, Hogan Lovells, highlights the importance of publishing this data, and has even created a guide to help other companies overcome concerns about privacy and data protection as they follow suit.

The time is now for ethnicity pay gap reporting

We started this article by saying that it’s not yet mandatory to report your ethnicity pay gap. Don’t find yourself playing catch up when that legislation is passed.

Because while it’s true that gathering and publicising your ethnicity pay gap data won’t be a silver bullet, once we know exactly where the problem lies, we can then take meaningful steps to create an equitable workplace.

If you’re serious about tackling pay gap issues, embracing equity, and mitigating risk in the process, then FLAIR’s latest report is for you. Download it today to see how other leaders across the UK are making real progress in promoting racial equity.