Guidance

Introduction and overview

Updated 26 May 2023

1. Introduction

The UK workforce is becoming increasingly diverse but there is still more to be done to remove barriers to entering the labour market and to ensure pay and progression in the workplace is fair for all ethnic groups.

Data has shown there are wide variations in gross earnings between ethnic groups. Some ethnic minority groups earn less per hour than white British employees on average, while others earn more.^{[footnote 1]}

Analysing ethnicity pay information is one way employers can identify and investigate disparities in the average pay between ethnic groups in their workforce. It helps employers understand whether unjustifiable disparities exist between different ethnic groups and in turn, gives them an evidence base from which to develop an action plan.

It is already a statutory requirement for employers with at least 250 employees to measure and report gender pay gaps. While ethnicity pay reporting is voluntary, many employers already report on their ethnicity pay data. However, this is the first government guidance which sets out a consistent approach to measuring pay differences.

This guidance explains how employers can report on their ethnicity pay and in particular 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 aim of this guidance is to develop a consistent, methodological approach to ethnicity pay reporting, which can then lead to meaningful action, while remaining proportionate and without adding undue burdens on business.

Much of this guidance – including the methodology for the calculations – mirrors the approach set out in the guidance for gender pay gap reporting. This should help employers to avoid having to run different processes to collect pay data for both sets of calculations.

Ethnicity pay reporting is, however, much more complex than gender pay reporting. While gender pay analysis only involves a comparison between 2 groups, ethnicity pay analysis can potentially involve many more ethnic groups, depending on how ethnically diverse a workforce is.

Unlike gender pay reporting, employers may also have to make decisions about how best to combine different ethnic groups to ensure their results are reliable and statistically sound and to protect confidentiality. This document provides high-level guidance on how to approach balancing reliability and confidentiality. Where possible, the approach and the calculations should be checked with analysts.

These complexities also mean that employers should carefully scrutinise and explore the underlying causes for any pay disparities. There could be legitimate reasons why there are variations in pay across ethnic groups. It should not be assumed that any disparities are necessarily a result of discrimination. Where pay differences arise, further analysis is recommended to help employers understand the real causes and decide whether further action is needed, and if so, to target this more effectively.

Pay disparities may be due to a number of reasons. For instance, lower pay among a particular ethnic group may be because that group disproportionately applies for lower paid, more junior positions in an organisation. On the other hand, it could be because the company does not provide adequate progression opportunities for people from that ethnic group. It is up to employers to do further work or collate other available data (for example, staff surveys, data on recruitment and progression) to identify and understand the underlying causes.

This guidance helps employers to navigate these particular challenges.

To maximise the impact of ethnicity pay reporting, employers should then outline the actions they intend to take to reduce any disparities, including how success will be measured.

2. Overview

Since 2017, employers with 250 or more employees have been required to publish gender pay gap figures. Employers are not required to collect, analyse or publish information on ethnicity pay but many choose to do so as a positive measure to improve workforce progression. In Inclusive Britain, published in March 2022, the government committed to issuing guidance to support employers to calculate their ethnicity pay and to take meaningful action on the findings.

2.1 What is a pay gap?

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 defines a pay gap to be the difference between the median (or mean) hourly pay of employees in category A and the median (or mean) hourly pay of employees in category B.  This is expressed as a percentage of one group’s earnings. For ethnicity pay calculations, this would involve employers calculating whether employees in a certain ethnic group earn X% less or X% more than employees of a different ethnicity per hour. A pay gap can be calculated across a whole workforce. It can also be calculated for groups within a workforce, for example based on age or work patterns, like part-time work. This can help employers to understand if certain groups are affected more than others.

2.2 A pay gap is not the same as unequal pay

A pay gap is not the same as unequal pay. Unequal pay means that employees performing equal work, or work of equal value, are not receiving equal pay. It is unlawful to discriminate both directly and indirectly against employees and people seeking work because of their race, including ethnicity. This includes paying an employee less or giving them terms and conditions which put them at a disadvantage because of their race.

An ethnicity pay gap is a measure of the difference between ethnic groups’ average earnings across an organisation or the labour market as a whole over a period of time, regardless of role or seniority. It is not a like-for-like comparison of employees of different ethnicities. Even if an employer has a fair pay and reward policy, and even if it has equal pay, it could still have a pay gap.

For example, a company has 5 pay bands with equal numbers of employees in each. At each pay band, employees of all ethnicities doing equal work, or work of equal value, are paid the same. This means the employer has equal pay. However, a higher proportion of black and Asian employees are in the lowest pay bands, and a higher proportion of white British employees are in the highest pay bands. This means that the average hourly pay for black and Asian employees is lower than the average hourly pay for white British employees. As such, the employer would have a pay gap, despite having equal pay.

1. Ethnicity pay gaps - Office for National Statistics ↩