Proposals for ethnicity pay gap reporting

18 October, 2018

Last week the Government published a consultation setting out its proposals for the introduction of compulsory ethnicity pay gap reporting for organisations with have 250 or more employees.

Some employers such as Marks & Spencer, KPMG and Ernst & Young voluntarily included data about ethnicity pay when publishing their gender pay gap reports in April 2018. The Greater London Authority in March 2018 published an ethnicity pay audit with results including a 9.8% pay disparity at Transport for London and 16.7% in the Metropolitan Police.  Lloyds Banking Group is the first FTSE company to set BAME (Black, Asian and minority ethnic) representation targets, with aims for 8% of senior executives and 10% of its total workforce to be members of the BAME communities by 2020.

These however are exceptions to the overall picture of limited progress towards improving employment and career prospects for those from ethnic minority backgrounds.  According to a survey by Business in the Community, only 11% of employees reported that their organisations were collecting data on ethnicity pay.  Against this background the Government views that the introduction of mandatory reporting is necessary to identify the barriers to workplace progression by members of ethnic minorities.

Proposals under consultation

The proposals for mandatory reporting of ethnicity pay gaps are broadly modelled on the regime for gender pay gap reporting.  The consultation puts forward a range of options for future legislation: a single pay gap figure which compares average hourly earnings of ethnic minority employees as a percentage of the earnings of white employees, several pay gap figures based on different ethnicity groups, and a breakdown of pay data by £20,000 pay bands or pay quartiles.  There is no indication that the reporting obligation would be accompanied by any requirement to publish an action plan.

The consultation paper recognises a number of challenges around ethnicity pay gap reporting, such as a lack of standardisation in the classification of ethnic groups, and the tension between granularity of pay gap information and data protection principles.

The consultation is open until January 2019, and new legislation on this front could perhaps be introduced from April 2019 with the first annual reporting date occurring in April 2020.

Pay ratio gaps

Quoted companies in the UK will before then become subject to mandatory reporting of the pay ratio between their Chief Executive (CEO) and their average UK worker, under proposals published in a consultation in July.  The proposed legislation due to become law in January 2019 and will apply if the company has more than 250 employees in the UK.  The reporting obligations would include pay ratios at the median, 25th percentile and 75th percentile.  The company would have to explain any year-on-year increases or decreases, and the reasons for any trends, and state its view whether the median ratio is consistent with its pay, reward and recognition policies.

The latest annual assessment of FTSE 100 pay packages by the CIPD, released in August, showed that CEO median pay rose by 11% between 2016 and 2017, compared to a 2% rise in median pay for full-time workers over the same period.  The mean pay ratio between FTSE 100 CEOs and their employees is 145:1.

Please contact our Employment team if your organisation requires advice and guidance concerning its statutory pay reporting obligations.