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The UK Government has confirmed that they will not make ethnicity pay gap reporting mandatory. In its Inclusive Britain plan, the government outlined its response to last year’s Sewell report, led by education consultant Tony Sewell, which concluded that institutional racism was not the cause of additional hurdles faced by ethnic minorities in the UK. Instead, the plan focuses on 70 actions that aim to reduce racial disparities.

Here we outline the steps employers are taking to monitor their demographics and the actions that can reduce the barriers to equality faced by ethnic minorities in the UK.

A missed opportunity?

The CIPD has called the decision of the government to not make reporting mandatory a ‘missed opportunity’. They were hoping for mandatory reporting in keeping with the gender pay gap reporting requirements. While they recommended that the rules applied to all large employers from April 2023 and be accompanied by an explanation around the nature and cause of pay gaps to help tackle disparities, arguably a voluntary approach makes it harder to support employees in tackling racial discrimination and inequality.

In our 2022 UK Reward Management Survey, which is currently live, emerging data shows that 38 per cent of respondents had already started to measure their ethnicity pay gap. 35 per cent planned to measure these figures. 76 per cent have an equality, diversity and inclusion policy in place, with 42 per cent monitoring or planning to monitor age and 46 per cent monitoring or planning to monitor their disability demographics, signalling how keen employers are to understand the make-up of their workforces.

Representation is a cornerstone of greater inclusion. Even though the government promises further support for voluntary reporting in 2023 through its Equality Hub, arguably HR teams were gearing up for this type of reporting. Many anticipated that reporting would be legislated imminently. Maximising the adoption of voluntary reporting through guidance and resources risks being a ‘nice to have’ rather than a compliance measure that everyone has to meet. A less formal approach risks a slower uptake of these measures as opposed to the gender pay gap where companies are being held to greater account.

Why monitor the ethnicity pay gap?

The business case for greater diversity and inclusion has been well established. McKinsey’s report Diversity Wins: How Inclusion Matters outlined the impact of greater diversity on profitability. Wider and more varied perspectives can result in more creative outputs. From bolstering recruitment and retention, indicative of the inclusive culture of a workplace that attracts prospective candidates and fosters cultures that thrive, to forming a key part of tenders as prospective clients interrogate the initiatives in place by prospective business partners, diversity and inclusion is a board-level agenda item that directly impacts the bottom line.

Some employers have already voluntarily decided to monitor and report on their data, which is enabling them to identify the drivers behind their demographics. For instance, identifying pay gaps means that employers can critically examine where issues occur – whether that is at senior levels of the business or at entry level. This identifies the actions that can be taken to readdress the balance and helps to focus on how under-represented groups can be best supported. Whether that is more investment in progression paths or rooting out unconscious bias at recruitment stages, there is no ‘one size fits all’ approach.

"To truly embed greater diversity and inclusion requires continuous monitoring."

What barriers exist?

Employers must collect the right data which takes time and concerted effort. This may require internal campaigns to encourage employees to opt in to their firmwide surveys and provide their ethnicity data, while also reassuring employees about how their data will be used. This paves the way for successful and meaningful ethnicity reporting. Asking employees what matters to them can also identify what works best, encouraging advocates for diversity and inclusion across the business and promoting a culture where everyone listens to one another’s lived experiences.

The Sewell report was widely criticised as being “tone deaf”, in spite of the report concluding that racism still exists in the UK. The Commission on Race and Ethnic Disparities that led the review said that family structure and social class had a greater impact than race on how people’s lives turned out. The commission’s report, set up following the Black Lives Matter anti-racism protests, found that the education system offered “far greater opportunities for all” and diversity had increased in professions such as law and medicine. Mistrust remained that could be a barrier to success – something that arguably pay gap transparency could tackle.

What does the government recommend instead of mandatory reporting?

The Inclusive Britain report issued by the government last month outlines how bias can be tackled through positive discrimination policies in the workplace and across wider society. Evidence-based resources are key to creating a step change when it comes to creating a workplace culture that has fairness at its heart.

Recommended actions by the government are based on the fact that the Sewell report outlined that the barriers faced by ethnic minority groups have multiple and complex causes. Guidance is provided about using artificial intelligence in the recruitment process. This outlines how anti-discrimination law can be applied to decision making in algorithms which reduce the risk of taking decisions that are biased. The term BAME is also relegated in favour of more granular identities. Policies to address socio-economic factors and geographic factors, where there are clusters of groups in areas where jobs are scarce and poorly paid are talked about in the context of the government’s wider levelling up strategy.

What can you do as an employer to embed greater diversity and inclusion?

The CIPD has already outlined their guidance for employers to publish their annual ethnicity reports. They recommend that employers should profile pay by ethnicity; outline a supporting narrative to explain pay differentials and gaps; and define an outline plan of initiatives to reduce and remove gaps over time. The CIPD believes that voluntary reporting is essential so that employers can assess if and where inequalities exist in their workforce. This ensures that the employer commits to actions that are informed and well targeted.

"Wider and more varied perspectives can result in more creative outputs."

To truly embed greater diversity and inclusion requires continuous monitoring. Monitoring metrics to understand their organisational demographics helps to target effective initiatives. Companies should assess the initiatives in place that make the most impact, translating insights into actionable intelligence.

Some respondents to our UK Reward Management Survey have outlined the following initiatives that they have in place:

  • Stepping up diversity training and making this a pre-condition to promotions
  • Having a dedicated equality, diversity and inclusion function or individual
  • A defined equality, diversity and inclusion policy
  • Ethnic minority staff networking groups
  • Focused mentoring/talent schemes
  • Engaging with external organisations
  • Joining an accredited employer scheme

Get in touch

The government has chosen to remain close to the outcomes of the Sewell report and tackle ethnicity pay gaps as a wider socio-economic issue. The report seems sympathetic to the idea of reporting, promising further support for those who choose to voluntarily publish their ethnicity pay gap figures but does not enforce this. Instead the recommendations focus on the wider initiatives designed to support greater equality, diversity and inclusion – and time will tell whether this creates the step change required to identify the right initiatives.

Call us today to discuss how we can help you define your next steps when it comes to cultivating a sense of belonging for your employees. You can also have your say on the steps you are currently taking to tackle inequality in your organisation in our spring edition of Paydata’s UK Reward Management Survey. In return for fifteen minutes of your time, we will send you the full report.


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