Labour plans to make Companies Publish Ethnicity Pay Gaps

Labour plans to make larger companies publish information on their disability and ethnicity pay gaps.

The planned changes are a key part of the government’s ‘Plan to Make Work Pay’ and are included in the draft equality (race and disability) bill.

This has been welcomed by the likes of Aviva and BT. There is hope that the additional transparency will encourage companies to close any existing pay gaps and improve workplace equality.

According to data from the Office for National Statistics (ONS), Asian or Asian British employees earned more than White employees, with a pay gap of -33%.

When delving into specific ethnicities, Indian heritage workers had higher earnings compared to White British employees.

On the other hand, Bangladeshi and Pakistani employees earned less.

Meanwhile, non-UK-born Asian workers earned 9.7% less than UK-born White employees.

When looking at Asian or Asian British employees using the 18-category ethnic breakdown in England and Wales, there were noticeable differences in the effect of the adjustment process by ethnic group.

This suggests that there were different distributions of pay-determining characteristics for each of the Asian or Asian British sub-groups compared with the White British group.

For most years, the largest difference between the raw and adjusted pay gaps was seen for Chinese employees.

There was a reversal in the pay gap for non-UK-born Indian employees, from earning more than White British employees at a raw level to earning less once adjusted.

There was a smaller difference between the raw and adjusted pay gaps for Bangladeshi and Pakistani employees (regardless of country of birth).

Many organisations are familiar with gender pay gap reporting but ethnicity and disability pay gap reporting are new territory for most.

One business already doing this is the publisher Penguin Random House.

In 2023, its mean ethnicity pay gap was 13.8%, 4.1 percentage points lower than the prior year.

However, its disability pay gap increased marginally by 0.7 percentage points to 18.6%.

Val Garside, Penguin Random House UK’s HR director, said:

“Penguin’s pay gap reports have helped shine a spotlight on where our opportunities are, meaning we can take targeted action to address the challenges identified through the reporting.”

However, it could be a challenge because employers need their employees’ permission to store sensitive data on race and ethnicity, religion, sexual orientation and health and medical conditions.

Due to this, companies often have to rely on incomplete data.

Tom Heys, pay reporting lead at law firm Lewis Silkin, says:

“You’re relying on employees to voluntarily provide that information.

“Although companies will have 100% completion rates for gender, it will be much less for ethnicity, and lower still for other diversity measures such as disability.”

However, he believes that once the government makes it a legal obligation, employee response rates will rise.

How to Measure Disability or Ethnicity Pay Gaps?

A single ethnicity or disability gap is unlikely to be particularly useful for businesses.

Pay gaps can vary significantly, even within broad ethnicity groups.

More granular analysis may be possible but, when dealing with smaller amounts of data, the results can be skewed more easily by, for example, someone leaving the business.

But even with fewer data points, Penguin has been able to identify pay gaps.

Garside says:

“It still creates a spotlight on the need for action.”

“While it is critical to be transparent about the limitations of pay gaps reporting based on lower response rates, these limitations should not be a reason not to undertake the work.”

During any consultation, the way companies define disability is likely to be heavily discussed.

Thinking about the language used in any employee survey is also important.

For example, Penguin sought the advice of the Business Disability Forum, Stonewall and the Social Mobility Commission when designing its surveys.

Garside adds: “The language of inclusivity is constantly evolving.

“It is critical to ensure the most relevant and up-to-date questions are being asked and colleagues are offered an inclusive range of categories to respond.”