Ethnicity pay reporting – voluntary, not mandatory, reporting is the government’s decision

After a long delay, the government has announced it will not impose a new ethnicity pay reporting requirement on businesses at this stage.

In 2018, the Department for Business, Energy and Industrial Strategy (BEIS) launched a consultation that recognised 'it is time to move to ethnicity pay gap reporting'.  The consultation closed in January 2019 but until very recently no government response had ever been published. 

Gender pay gap reporting, a metric designed to reflect gender inequality across the workforce, has been mandatory for companies with over 250 employees since 2017.  There is no such legal requirement to monitor pay disparity for workers of different ethnicities .This is despite there being clear incentives to do so; the McGregor-Smith Review in 2017 estimated that addressing race inequality in the UK labour market could boost the UK economy by £24 billion a year.

For some time momentum appeared to be building for mandatory ethnicity pay reporting to be introduced. In September 2021, a parliamentary debate was held to discuss introducing mandatory ethnicity pay reporting, prompted by a Change.org petition which garnered over 300,000 signatures arising, in part, as a reaction to the death of George Floyd and the impetus of the Black Lives Matter movement.

At that debate the government confirmed it was still considering responses to the 2018 consultation and that it would be responding 'in due course'. However Paul Scully MP, Parliamentary Under-Secretary of State for BEIS, highlighted issues the 2018 consultation had raised which he said have been explored by the government in the period since the consultation closed. These include:

• how to achieve a sufficient sample size to enable valuable conclusions to be drawn but avoiding it being possible to identify individuals and their pay bands from the disclosed data
• barriers to employers collecting ethnicity data, including legal barriers (such as data protection rights) and low response rates from staff choosing not to respond
• how to categorise data effectively
• obtaining skewed results as a result of low numbers of certain ethnic minority groups within a particular employer, further complicated by the uneven geographical distribution of specific groups.

Despite these challenges, he confirmed that the government was determined to help employers tackle race and ethnic disparities in the workplace and was assessing the next steps for future government policy.  In response to a question from the House of Commons Women and Equalities Committee in November last year asking for an update, in January Mr Scully again stated that the Government would respond 'in due course' to the responses to its original consultation.

The Women and Equalities Committee held a one-off evidence session in January to examine the case for mandatory ethnicity pay gap reporting. In its report, while acknowledging the challenges of collecting ethnicity data, it stated that businesses were ready for the government to act, and that companies who currently report gender pay gap figures are 'already well resourced' to do so.  Their recommendation was mandatory ethnicity pay gap reporting should be in place by April 2023.  Addressing concerns heard regarding enforcement, their report called for a clear explanation of how new rules would be enforced, and that the government must provide employers with data protection guidance.

On March 17 2022, the government launched its Inclusive Britain strategy which sets out 70 actions to tackle racial disparities, boost opportunity and promote fairness.  The government’s decision on ethnicity pay reporting can be found at Paragraph 3.7, entitled ‘Promote fair pay’, which sets out the government’s desire to tear down unfair barriers in the workplace.

It suggests this is best done by following the evidence of what works best and implementing practical solutions employers can actually deliver. It also states that the government does not wish to impose new reporting burdens on businesses as they recover from the pandemic and so will not be legislating for mandatory reporting at this stage. This position aligns with the Commission on Race and Ethnic Disparities' report in March 2021 which called for ethnicity pay reporting to continue on a voluntary basis. BEIS will publish guidance to employers on voluntary ethnicity pay reporting in the summer.

A renewed government focus will no doubt encourage more companies to report voluntarily.  Although some organisations have already chosen to report their ethnicity pay data voluntarily recent research suggests the number doing so has been declining. HR DataHub, which benchmarks HR information, began collecting data on voluntary disclosures in 2018.  Since then a total of 170 companies have voluntarily reported their ethnicity pay gap data but only a quarter of those companies has reported each year.

In 2021 the number of companies voluntarily reporting dropped by just under half; 64 companies reported compared to 129 in 2020. David Whitfield, CEO of HR DataHub commented that this could be because lack of legislation makes it difficult for companies to know how to approach the particular complexities surrounding ethnicity pay gap reporting. More and better disclosure on ethnicity continues to be a hot topic for the Financial Reporting Council, institutional investors and proxy advisers.

Whether the BEIS guidance in the summer will be enough to drive significant change remains to be seen.