UK Employment Law Coffee Break | Ethnicity pay gap reporting, ACAS guidance on mental health and our immigration update webinar

Government publishes new guidance on ethnicity pay gap reporting 

The government has published guidance on ethnicity pay reporting recognising that "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". This follows the report "Inclusive Britain", published in March 2022, in which the government confirmed that, unlike the statutory duty on employers with at least 250 employees to report their gender pay gap each year, mandatory ethnicity pay gap reporting would not be introduced. The guidance is therefore intended to set out "a consistent approach to measuring pay differences".   

As part of its response to Inclusive Britain, the government has also published new guidance on "positive action" which we will be covering in next week's Coffee Break. 

What is an ethnicity pay gap?

As with gender pay, the guidance stresses that a pay gap is not the same as unequal pay. It explains that "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".

In contrast, 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.

An employer who has a fair pay and reward policy, and even if it has equal pay, could still have a pay gap. The guidance gives the example of a company which operates five 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. 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.

What does the guidance cover?

The guidance covers:

• collecting employees' ethnicity data;
• gathering the required payroll date for ethnicity pay calculations;
• making ethnicity pay calculations;
• analysing and understand the results of these calculations; and
• developing an action plan to address any identified disparities.

Much of it mirrors the approach set out in the guidance for gender pay gap reporting, including the methodology for the ethnicity pay calculations, as the government seeks to avoid employers "having to run different processes to collect pay data for both sets of calculations". It stresses though that ethnicity pay reporting is "much more complex than gender pay reporting".

Collecting employee ethnicity data

A first hurdle for many employers will be collecting data on employee ethnicity, which the guidance stresses should be approached "with sensitivity and transparency"; employers are "encouraged to devote time and resources to this part and to seek expert advice as needed".

The guidance identifies asking employees to report their own ethnicity as the best way to collect data but always with an option of not answering. Employers are directed to guidance from the Race Disparity Unit and government statistical service harmonised standards for collecting someone’s ethnicity which not only drives consistency but practically provides a "ready-to-use set of tested and legally sound questions". Employers are also directed to questions used in the official recent censuses.

The guidance also sets out the need for compliance with the General Data Protection Regulation (GDPR), noting that an employee's ethnicity will be regarded as special category data.

Understanding pay calculations

The guidance highlights the following complexities employers will face compared to gender pay gap reporting:

• Ethnicity pay analysis will potentially involve the need to make a comparison between a number of ethnic groups, depending on how ethnically diverse the workforce; gender pay analysis only involves a comparison between two groups.
• Decisions may need to be made about how best to combine different ethnic groups to ensure results are reliable and statistically sound and confidentiality is protected; high level guidance is provided on how to approach balancing reliability and confidentiality. Where possible, the approach and the calculations should be checked with analysts.   

As with gender pay reporting, and recognising that pay disparities can vary greatly even between employers in the same sector, the guidance urges employers to really understand the figures they have generated before seeking to tackle any identified disparities; where action is needed this will enable employers to "identify targeted and effective actions that will have a real impact on any ethnic disparities in pay in [their] organisation".

While existing Government Equalities Office guidance on the gender pay gap may be relevant, employers should be aware that "ethnicity pay disparities do not necessarily arise from the same reasons as gender pay disparities".

The guidance sets out questions for employers to consider in seeking to understand the cause of any pay gap; for example: Are some ethnic groups more likely to be recruited into lower paid roles? Do people from certain ethnic groups get "stuck" at certain levels within the organisation? Are some ethnic groups more likely to work in particular locations and does this have  an impact on pay? Do employees from different ethnic groups leave the organisation at different rates?

The guidance provides examples of possible reasons – internal (resulting from company practices) and external (relating to wider contexts outside the company's control) on why an ethnic group might be under-represented in the organisation and notes that even where external factors are in play, employers should still "examine if there are actions [they] could still take to mitigate their impact".  

Reporting ethnicity pay calculations

The guidance confirms that employers are not required to report their ethnicity pay calculations "but may choose to do so to improve transparency".

It expressly notes that "due to the complexity of these calculations care should be taken in explaining the results" and "any report should aim to help employers and employees understand why a pay disparity might be present and what has been – or will be – done to analyse and improve it". In this respect, the guidance recommends that rather than relying on any single calculation for their ethnicity pay reporting, employers present a range of calculations as set out in the guidance, broken down by ethnicity categories; for example the guidance notes that the mean pay of white British employees compared to the mean of ethnic minority groups combined, is not as useful as considering the recommended calculations and producing analysis for individual ethnic minority groups. However, it stresses that this is "provided the privacy of individuals is ensured".

The guidance also recommends employers consider a supporting narrative including explanations for each pay figure reported, a summary of why it is believed pay disparities exist, wider workforce statistics and efforts undertaken to understand and address any pay disparities. It warns against making "definitive assertions about why pay gaps might exist without robust analysis as reasons for any pay gaps are likely to be complex and multi-dimensional".  

An important step is producing pay calculations every year "in a consistent way.. to see how any disparities in the organisation are changing". Employers may also want to consider publishing an action plan that explains how they intend to address unfair pay gaps in ethnicity pay figures. The guidance states that a good action plan "should name clear, measurable targets that you commit to achieving within a chosen time frame" and which can relate to actions aimed at "better understanding your pay statistics and addressing any unfair disparities".

Next steps

The benefits diversity and inclusion brings to an organisation are now well recognised; the guidance recognises that "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" and that "ethnicity pay reporting is one of the tools employers can use to build transparency and trust among their employees".

While some employers are already taking steps to report their ethnicity pay data, others are yet to embark on the process. However, this guidance provides a comprehensive tool for employers to understand each stage of the process and the specific complexities that ethnicity pay reporting brings. The government states that the aim of the guidance is to develop a "consistent, methodological approach to ethnicity pay reporting" which can "lead to meaningful action while remaining proportionate and without adding undue burdens on business", enabling "meaningful comparisons" to be made.

Employers should note that the government is launching an Inclusion at Work panel this spring which will develop and disseminate advice on evidence-based actions employers can take to improve inclusion and fairness in the workplace. The panel’s work will inform a new voluntary Inclusion Confident Scheme which employers will be able to sign up to demonstrate their commitment to adopting the most effective diversity and inclusion measures in the workplace. Updates on this will be available on the Inclusive Britain publications and updates pages.

New Acas mental health guidance on reasonable adjustments

Acas has issued new guidance and resources to help support employers and employees when handling reasonable adjustments for mental health at work, including the practical steps and considerations they should be aware of.

The advice covers:

• what reasonable adjustments for mental health are;
• examples of reasonable adjustments for mental health;
• requesting reasonable adjustments for mental health;
• responding to reasonable adjustments for mental health requests;
• managing employees with reasonable adjustments for mental health; and
• reviewing policies with mental health in mind.

With increasing numbers of employees suffering with mental health conditions and the pressures placed on employees as a result of the cost of living crisis exacerbating this trend, this guidance provides a welcome framework for employers wanting to support employees with mental health difficulties. 

It can be more challenging to identify reasonable adjustments for mental health conditions than for physical ones as the difficulties can be less visible and employees may still be more reluctant to share mental health challenges with their employers. Increased home working may also make it more difficult to spot when an employee is struggling with their mental health, as the signs that may have been picked up day-to-day in the office or work environment can be lost, with many employees masking their difficulties during remote catch-ups.

As highlighted by the guidance, taking a supportive approach to making reasonable adjustments for mental health can help employees to stay in work while recovering from or managing a mental health condition and can also help employees work safely and productively.

Reasonable adjustments for mental health can also have a positive effect on retention, reduce recruitment and training costs, reduce absenteeism and management time spent on managing disputes and legal claims where support for employees has been poorly implemented or managed.  Creating a healthy work culture, and demonstrating commitment to supporting employees with mental health difficulties should be part of all employers' wellbeing strategy.

Read our Insight on hybrid working and managing addiction risk. 

Our immigration update webinar

On 25 April our immigration team will be hosting a webinar examining the recent immigration changes from the Home Office and how these will affect businesses and compliance. We will also look at other recent developments and how these have influenced applications under specific routes.

After registering you will be able to download the webinar details to save to your calendar. Joining instructions are included within the calendar file. You will also receive these details by email before the webinar.

Register here >