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Ethnicity Pay Gap: Why mandatory reporting is important

Darren Hockley
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Recently, in a letter to the government, the Confederation of British Industry (CBI), Trades Union Congress (TUC) and Equality and Human Rights Commission called for mandatory ethnicity pay gap reporting, expressing that collecting this data will help tackle racial inequalities at work.

Since 2017, organisations with more than 250 employees, must report on their gender pay gap. Reporting has helped organisations tackle pay disparities between men and women in similar positions. Likewise, a move for ethnicity pay gap reporting will be a significant step for organisations to narrow and abolish any ethnicity pay disparities.

Introducing mandatory ethnic pay gap reporting would be a significant move for the government – as it will uncover whether or not organisations are doing enough to encourage equal pay. This call for action is a step in the right direction towards improving ethnicity equality in the workplace.

Here are five reasons why it is crucial ethnicity pay gap reporting becomes mandatory:

Drawbacks to voluntary reporting

Unfortunately, if it’s not mandatory, many organisations won’t do it. Take the gender pay gap reporting as an example – this year, the Government Equalities Office granted an extension to UK businesses to disclose their gender pay gap due to the pandemic. Yet, only 25% of eligible organisations chose to publish their reports by the usual 5th April deadline. PWC’s analysis also found a three-year decline among companies that divulged their pay gaps from 14.3% in 2017-18 to 12.5% in 2020-21. The reduction in the pay gap demonstrates companies are putting more focus on addressing the gender pay gap and gender balance issues they are spotting due to the mandatory reporting.

For companies who have no employees from other ethnic backgrounds, this report is likely to uncover the hidden disparity in diversity hiring. The reporting may bring out any issues into the limelight and force organisations to create strategies to increase and improve their diversity hiring process, attracting the best talent.

Establish trust

Trust works both ways. Organisations must be able to trust their employees to do the work they are employed to do. Equally, employees must be able to trust their employers and have confidence they are being paid appropriately according to their role and skillset. Transparency in seeing this data will help build this trust, but also benefits businesses with talent attraction and retention. Pay disparities are likely to reduce employee engagement, leading to loss of talent. Under the Equality Act 2010, organisations cannot discriminate against various protected characteristics such as gender, race, religion or belief and age, among others – with this in mind, pay equality is a right.

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Create an inclusive environment

Unfortunately, institutional racism still exists in the UK. Just as gender inequalities have been brought to the public eye, now is the time to do the same with ethnic pay reporting. Recent racist behaviour following England’s football final at the Euros has revealed systematic racism still continues to take place. By demonstrating pay gap reporting, organisations will create an inclusive environment for all their employees – ensuring employees from different ethnic backgrounds can have peace of mind they are getting paid according to their skillset.

Show accountability

Organisations that complete ethnicity pay gap reporting will become more accountable for improving their equality and diversity hires. Taking responsible actions to ensure people get paid for their merits, based on their role and responsibility and are not discriminated against due to their gender, race or ethnic background. It also leads them to understand ethnicity pay gap issues, resulting in organisations driving cultural change around diversity and inclusion goals. Mandatory reporting should not only be a tick box exercise to keep the government happy. If organisations do capture this data, it can provide valuable insights highlighting if and where barriers exist, so they can put solutions in place to handle any issues and disparities around ethnicity pay.

Address discrimination head-on

Organisations must prioritise addressing discrimination head-on by fixing any pay gaps that exist among employees. Having a diverse workforce from different genders and different ethnic backgrounds and cultures makes organisations stronger – strengthening the decision-making and creative culture. Research from McKinsey reveals that companies in the top quartile for ethnic and cultural diversity on executive teams were 36% more likely to have above-average profitability than companies in the fourth quartile. It highlights that “the most diverse companies are now more likely than ever to outperform less diverse peers on profitability”.

Tackling discrimination starts from within, so supporting the workforce with equality and diversity training can help identify unconscious bias and affect change and mindset. Besides, ensure policies are in place for a pay structure and benefits package that allow for equality between those in similar roles, regardless of gender or ethnic background.

While it will still take some time until ethnicity pay equality prevails, organisations can strengthen employees’ rights by playing their part through reporting. And until reporting becomes mandatory, business leaders can lead the way through voluntary reporting, creating an inclusive and trustworthy culture that employees feel comfortable within.

By Darren Hockley, Managing Director at DeltaNet International (@DeltaNetInt​)

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