What you need to know about ethnicity pay gap reporting

Victoria Templeton, HR Knowledge Manager at HR Solutions, explains what is meant by ethnicity pay gap reporting, the benefits of doing it and how it differs from other inequality duties.

What is ethnicity pay gap reporting?

Ethnicity pay gap reporting involves gathering and analysing your workforce’s pay data to enable you to identify differences in pay between ethnic groups. Knowing what and where the differences are can enable you to take appropriate steps to address inequalities in the workplace.

The recommended guidance from the Government advises a process that follows a similar approach to when you analyse and report on gender. However, they are significantly different as there are many more groups to factor in to the calculations with ethnicity pay gap reporting.

At present, there is no statutory requirement for employers to carry out ethnicity pay gap reporting, however in 2023 the government introduced guidance for employers on how do it, if they choose to do so voluntarily.

Data from the Office for National Statistics, which provides context for the existing guidance, suggests that there are wide variations in pay across different ethnic groups. It also shows that most minority groups earn less that white British employees and that this varies across the UK, with the largest pay difference being in London and the smallest in Wales.

Moving forward under the new government, it will become a statutory requirement for certain employers under new legislation. Anytime now, the government will introduce a new Equality (Race and Disability) Bill, which if passed will:

place a legal duty on employers with more than 250 employees to carry out ethnicity (and disability) pay gap reporting
extend equal pay rights to protect workers who suffer discrimination on the grounds of their race (and disability)
ensure that outsourcing services cannot be used to avoid paying equal pay
implement a regulatory and enforcement unit for equal pay with involvement from trade unions

What are the benefits of ethnicity pay gap reporting?

There are several significant benefits to carrying out ethnicity pay gap reporting:

Inclusive workplace

A workplace audit examining how pay is distributed across different work groups can highlight any imbalances amongst different ethnic groups. This then allows the organisation to investigate the cause and, where necessary, update their reward systems and put any other appropriate measures in place to ensure the imbalance is addressed and the workplace is inclusive.

Legal compliance

Analysing pay data of your workforce also enables the organisation to remain compliant with equality law. Whilst there is currently no legal requirement to carry out ethnicity pay gap reporting, there is one in regards to the prevention of discrimination, in accordance with the Equality Act 2010.

This means that it is unlawful to pay an employee less or give them terms and conditions that puts them at a disadvantage because of a protected characteristic. There are nine protected characteristics, one of which is race and includes colour, nationality, ethnic origins and national origins.

Carrying out an analysis on how pay is awarded and examining existing working practices will help the organisation to identify any practices or policies that inadvertently disadvantages someone from this group (or any other of the protected characteristics under the Equality Act 2010). If so, this is where there may be claims of indirect discrimination.

Analysing pay will also help the organisation to see if there are any pay differences between employees by looking at how someone is treated compared to someone else who is in a similar situation. Where there are instances of someone being treated differently to another person, and the difference in treatment is connected to their race, then this opens up claims of direct race discrimination.

Increased transparency and accountability

Undertaking ethnicity pay analysis and reporting on the outcomes can help the organisation to become more transparent, and therefore accountable to their employees, stakeholders and the public. It equally demonstrates a commitment to equality in the workplace to the existing workforce and therefore support employee retention.

Improve employee engagement

With inequality still being experienced across society, demonstrating to the workforce a commitment to preventing unfair treatment in employment, can help those from underrepresented groups to feel valued and respected and that their employment offers fair and non-discriminatory terms and conditions and that equal opportunities are available to all. Leading to improved employee morale, engagement and ultimately, productivity.

Is a pay gap not the same as unequal pay?

No, a pay gap is different to having unequal pay, for technical and legal reasons.

A pay gap is the difference between median (or mean) hourly pay between two people, and this is set out in the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017.

Unequal pay is when there are two employees, male and female, who carry out the same job role and under the same conditions but are paid differently solely because of the difference in their gender. Men and women must receive equal pay for carrying out ‘equal work’. It applies not just to basic pay or wages, but also to other aspects of a person’s contractual terms, such as pension, annual leave allowance, holiday and overtime pay.

About the author

Victoria Templeton is the HR Knowledge Manager at HR Solutions, an outsourced HR services firm offering employment law, and health and safety support and advice to businesses across the UK.

Find out more

Ethnicity pay gap reporting: Introduction and overview (GOV.UK)

Equality Act 2010 (Legislation)

Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (Legislation)

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Publication date

29 October 2024

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.