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The Challenges of Mandatory Ethnicity Pay Gap Reporting

‘Ethnicity Pay Gap Day’, on 8 January 2023, was a reminder that the issue has stagnated despite there being recognition, for at least the last five years, that pay gap reporting provides employers with good statistical data to help them analyse whether there are disparities in the diversity of their workforce which could be overcome.

In this article, Partner Emma Bartlett and Associate Yulia Fedorenko look at some of the challenges of ethnic pay gap reporting and consider the advantages and disadvantages of overcoming these.

The Ethnicity Pay Gap Day was founded by Dianne Greyson to raise the issue of earnings inequity across all sectors, which is said to be particularly acute in larger established organisations. It has received wide support, but with only 19% of employers (in 2021) voluntarily reporting, there is scope for more to be done and best practice examples to analyse. It has been a year since the government’s ethnic pay gap reporting review, which resulted in a finding that mandatory reporting was required and that larger businesses are ready for the government to bring forward legislation.

The challenges

It is acknowledged that ethnicity across the UK is not uniform, nor can ethnicities be reduced to just a few different categories. Collating and reporting on ethnicity pay gap data is more challenging than gender pay gap reporting. The benefits of analysing ethnic pay disparities are considered to be worth the effort where your employee pool is sufficiently large for the data to be valuable.  With smaller employee populations, small changes in the pool can have a disproportionate effect on the data which often makes analysis meaningless. It is therefore proposed that ethnic pay gap reporting applies to larger employers (250+) as is currently the case for mandatory gender pay gap reporting.

The government noted that “a pay gap is an indicator for employers to identify, understand and address trends in ethnic disparities across their own workforce.” It should be acknowledged that there will be multiple reasons for ethnic disparities.  For example, there could be clear geographic reasons to explain why certain employers are unable to access the same diverse talent pool as areas such as Greater London. However, in other cases, where the workforce is not representative either across its hierarchy or overall of its candidate pool, the data could provide explanations for the lack of ethnic diversity in certain areas, roles or businesses which can be tackled to encourage greater diversity of talent.

The ethnicity pay gap reporting problems often centre on the sturdiness of the statistics, confidentiality within the employee population, compliance with data protection legislation and risk of increased discrimination claims. The first question is whether reporting ethnicity gaps using White/non-White binary data is at all helpful given that ethnicity has multiple categories. The Commission on Race and Ethnic Disparities recommends that employers report their data disaggregated by different ethnicities to provide more accurate information. There is a consensus in respect of this approach amongst relevant organisations. Although, the CIPD suggests that employers consider ethnicity category with caution, as low numbers may distort results.   

It is mandatory for public sector employers to publish its ethnicity pay gap, although there is criticism of the analysis to explain disparities or actions, which is a shame, as the value of ethnicity pay gap reporting lies in the narrative accompanying the data as it is the employer’s opportunity to explain its pay gaps and commitment to improve. 

Collecting ethnicity data

The personal characteristics of an employee which need to be disclosed to the employer in a confidential way and used only for data collection which is agreed.  The employer will therefore need to be clear if it wants to use it anonymously for pay data reporting and analysis purposes. Low disclosure rates, low confidence in the employer’s racial inclusion policy, and concerns about GDPR are often cited as reasons not to collect ethnicity data.  These could be countered by encouraging employees to disclose their data, communicating the reasons they need ethnicity data and what they will use it for, nominating employees to act as champions.

Determining the range of ethnic categories can be a challenge.  One suggestion is for employers to ask employees to use the 18 ethnicity categories listed in the UK census to encourage disclosure rather than having only binary options of ‘White’ or ‘BAME’. Whether the employer reports their ethnicity pay data against the binary headline data and uses the more detailed ethnicity data for granular analysis is another matter.

Data protection

Uncertainty as to whether the GDPR permits employers to use ethnicity data for ethnicity pay gap reporting can deter employers from publishing findings. GDPR does not prevent this provided the data has been captured and analysed within the scope of the employer’s data privacy policy. Therefore, the ICO suggests ensuring that the relevant policies are up to date allowing employers to collect employees’ “sensitive personal data” and that data collection is not excessive.

Does ethnicity pay gap reporting increase the likelihood of discrimination claims?

Employers may have certain reservations in respect of ethnicity pay gap reporting. For instance, they may be concerned about potential exposure to discrimination claims. Although this is a legitimate concern, there is no evidence to suggest that the number of equal pay claims has increased since the gender pay gap reporting was introduced. However, there is a risk that unexplained disparity in pay may prompt employees to bring a claim.  Further, that employees may attempt to use their employer’s ethnicity pay gap report in proceedings with a view to cast shade on the employer’s practices. It is our view that evidence of this nature is unlikely to be regarded as a “silver bullet” in a discrimination claim, as the pay gap does not automatically mean that the employer discriminates its employees. Nevertheless, an employment tribunal may draw inferences in the absence of a plausible explanation. The counter argument to this is that the employer is sufficiently concerned about diversity of opportunity that it has invested time and resources in analysing the data it has to understand how to improve equality of opportunity in its workplace – the accompanying narrative will be key to explaining this.

Will there be reputational consequences of having an ethnicity pay gap?

It may be difficult to avoid negative reputational consequences, particularly if the pay gap is prominent. One way to mitigate negative publicity and reputational damage is for employers to have robust communication channels in place with their employees and the media. If an employer can clearly explain the reasons behind the pay gap and put forward an action plan to address any issues, then it is unlikely to be seen negatively in the public eye. Further, employers that strive to improve their pay gaps will also improve their ESG scores and attract good publicity and talent.  


While ethnicity pay gap reporting is not yet mandatory, it has been on the agenda long enough for us to know that it remains on the government’s agenda (when parliamentary time allows) and that of interested lobby groups and employees. Employers wishing to get ahead of the game would do well to consider how to improve capturing their diversity data (in a sensitive and confidential way), consider how to analyse and what measures can reasonably be taken to bring about change and equality of opportunity in advance of mandatory obligations. This will make the narrative easier from the outset even if early steps taken now are not published yet. 

If you would like to discuss ethnicity pay gap reporting in more detail, or if you have any questions arising from this article, please contact Partner Emma Bartlett and Associate Yulia Fedorenko, both of whom specialise in employment and partnership law issues for multinational employers.