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Ethnicity pay gap: Government may require businesses to report figures

Government may require businesses to report figures

The Government has published a consultation paper on mandatory ethnicity pay gap reporting. What might this mean for employers?

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The Government's Race Disparity Audit and Labour Force Survey revealed that the employment rate for people from ethnic minorities is lower than that for white people.

The Government is consulting on whether organisations in England, Wales and Scotland should be required to disclose how people from different ethnic backgrounds are paid.

The consultation

The key consultation questions are summarised below.

Which employers should report?

The Government has indicated that employers with fewer than 250 employees should not be required to report.

A threshold of 250 employees would mirror the Gender Pay Gap (GPG) reporting requirements.

What ethnicity pay information should be reported?

The Government’s suggestions include:

  • Pay gap figures comparing the average hourly earnings of ethnic minority employees as a percentage of white employees (like the GPG reporting requirements);
  • Different pay gap figures for different ethnic groups; and
  • Pay information by pay band or quartile showing the proportion of employees from different ethnic groups by £20,000 pay bands or by pay quartiles.

What categories of ethnicity should be used?

The Government is considering whether to apply the 18 categories used by the Office for National Statistics or an alternative narrower categorisation.

Should a narrative and action plan be required?

The consultation seeks views on whether it should be mandatory to publish a narrative and action plan for addressing pay disparities.

Currently, employers within the scope of GPG reporting in England, Wales and Scotland are not obliged to publish an explanatory narrative or action plan on how they intend to close their gap.

Implementation

The Government has not indicated when any new law is likely to be in force, but suggests that it could work with ‘early adopters’ across the public and private sectors to test approaches before mandatory reporting is introduced.

What should employers think about?

In our experience collecting, analysing and reporting meaningful ethnicity pay data can be complicated as:

  • There is no legal obligation for employees to disclose their ethnicity, nor is there a legal obligation on employers to collect such data - data quality and quantity might therefore be poor and not reflect an employer’s total population;
  • Where employers do gather data, they may use their own system of ethnic classification - if ethnic groups are not carefully defined, this may weaken the ability to draw comparisons between employers (for that reason, the Government is seeking views on whether a standardised approach should be used and on the estimated cost of changing human resources systems to allow for this);
  • The data relies on an employee's subjective view of their ethnicity - some employees may not identify with any group or may identify with more than one, so the definitions used should be sensitive and carefully drafted; and
  • Employers have a duty to ensure the anonymity of those who provide their data, the consultation asks for views on how this should be protected.

Employer can respond to the consultation online, by email or in writing by 11 January 2019.

It is likely that the Government will take several months to publish the consultation responses and confirm their final approach.

Legislation to introduce any new reporting obligations may well be the subject of further consultation.

That being the case, it seems unlikely that ethnicity pay gap reporting will come into force in the course of 2019.

For now, employers should monitor the progress of this proposal and begin to think about how employee declarations would be encouraged and how ethnicity and pay data would be protected.

How KPMG can help

KPMG intends to submit a response to this consultation and we will be confirm our recommendations in due course.

In the meantime, we are happy to assist you with any aspect of pay reporting or to provide diversity and inclusion training to staff at all levels of your organisation. If you have any queries, please get in touch with your normal contact or e-mail employersclub@kpmg.co.uk.

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