Ethnicity pay gap reporting guidance published

Morton Fraser Senior Associate Sarah Gilzean
Sarah Gilzean
24 April 2023

Publication of the guidance follows last year's decision not to introduce mandatory ethnicity pay gap reporting.

The UK Government Race Disparity Unit, Equality Hub and the Department for Business and Trade have published ethnicity pay gap reporting guidance for employers.  While ethnicity pay gap reporting is to remain voluntary, according to the UK Government the aim of the new guidance is to enable employers to develop a consistent, methodological approach to the reporting which it is hoped will then lead to meaningful action. 

What is the ethnicity pay gap?

The ethnicity pay gap is the difference between the average earnings of black, Asian and minority ethnic employees in an organisation and the average earnings of white employees.   As with the gender pay gap statistics this is not a like for like comparison, rather it looks at average earnings across an organisation irrespective of role or seniority. 

The most recent ethnicity pay gap data available from the Office for National Statistics (ONS) was released in 2020.  This showed that there was a considerable discrepancy in terms of hourly pay depending on the ethnic group to which a worker belonged.  For example, while the median hourly rate of pay for the White British group was £12.49 per hour, for Pakistani workers it was £10.55 per hour and at the other end of the scale for Chinese workers it was £15.38 per hour.  While there were four ethnic groups that had a higher median hourly rate than British White workers, the majority of different ethnic groups earnt less.  The data also showed that the ethnicity pay gap was larger for men than women (although for most ethnic groups men continued to earn more than women), and that the size of the ethnicity pay gap for those aged 30 and over was larger than for younger workers. 

What does the guidance say?

While much of the guidance mirrors the approach set out in guidance for gender pay gap reporting it recognises the increased complexity that comes from having numerous ethnic groups to consider.  The guidance takes employers through the steps involved in reporting.  This includes how to:-

  • collect employees’ ethnicity data
  • gather the required payroll data for ethnicity pay calculations
  • make ethnicity pay calculations
  • analyse and understand the results of these calculations
  • develop an action plan to address any identified disparities

The importance of using detailed ethnicity classifications is highlighted in the guidance.  It is recommended that employers use the questions on ethnicity that are set out in the most recent Census for the country they are based in (so for Scotland that would be those set out in the 2022 Census for Scotland ethnic group: guidance).  The guidance also encourages employers to use the pay gap data they collect as a basis to identify the cause of the gap and then to create an action plan to address those causes.  

Whether the guidance will encourage more employers to start ethnicity pay gap reporting is unknown.  There are certainly still many groups who believe, to be truly effective, ethnicity pay gap reporting needs to be mandatory.  In the meantime, the structure provided by the guidance for those who are or intend to start reporting is a step in the right direction.


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