Time to introduce ethnicity pay reporting?

The killing of George Floyd has seen the Black Lives Matter movement gain momentum and expose widespread racial inequality across the globe. Is the time now right for ethnicity pay reporting to be introduced? Lucy Trevelyan reports.

Gender pay gap reporting obligations and/or gender pay laws have been the norm in many European countries for a number of years. These have largely proven effective in countries which have implemented them, according to Karine Audouze, Senior Vice-Chair of the IBA Diversity and Equality Law Committee and a partner at UGGC Avocats in Paris.

‘Iceland, for example, has the strictest legislation on pay equality between men and women,’ she explains. ‘The law prohibits men and women being treated differently. In cases of non-compliance the employer is sanctioned with a fine which has to be paid per day that the female employee is not paid the same as her male colleague.’

Iceland currently sits atop the Top 10 of the Global Gender Gap Index, the yearly publication monitoring gender pay gap reporting.

Countries with a proactive pay reporting model, Audouze says, benefit from broad implementation, a reduced need for complaints, clarity regarding pay reporting and pay equality aims and clear targets for achieving pay equality.

Ruth Thomas is a senior consultant at Curo Compensation, a compensation management and pay equity software provider. She says that while legislation on pay reporting can be pivotal to ensuring action, it also has its shortfalls.

‘Often it does not go far enough to encourage employers to commit to real action,’ believes Thomas. ‘For example, in the UK the Gender Pay Gap Regulations have meant thousands of organisations have had to publicly report their data but there is no requirement to publish or commit to an action plan. So, for many this remains an annual box-ticking exercise of calculating and filing the six statutory calculations required.’

Since the introduction of mandatory gender pay gap reporting in parts of Europe, there has been a clamour for similar measures to be introduced for ethnicity pay gaps.

These calls have intensified with the rising momentum of the Black Lives Matter movement and with the publication of various reports on the divergence between white and ethnic minority pay. A 2019 report from the UK’s Office of National Statistics, Ethnicity pay gaps in Great Britain: 2018, found that white workers were paid 3.8 per cent more than all other ethnic groups in the UK. Further, the report revealed that UK-born Black African, Caribbean or Black British ethnic groups were paid an estimated 7.7 per cent less than their UK white British counterparts with the same educational and occupational characteristics.

Pia Sanchez, a senior consultant at law firm CM Murray, warns however that ethnicity pay gap reporting may be much more complex than gender pay gap reporting.

‘While it may help focus attention on the need for greater ethnic diversity in organisations, it does not help to explain why some ethnicities concentrate in some sectors, thrive in others, are completely absent from some, [and so on],’ she says.

Rachel Ward, a senior associate at UK law firm Lewis Silkin, says that although there is no one right answer as to what form ethnicity pay reporting should take to be most effective, there are probably a lot of wrong ones.

‘Reporting of ethnicity pay gaps might be ineffective because, when calculated from a small group, they are potentially much more changeable,’ she explains. ‘Even reporting the ethnic breakdown of a workforce might not be helpful because there are greater proportions of ethnic minorities in different parts of the country. This means it is difficult to compare one employer against another.’

Ward adds that coming up with an ethnicity pay reporting regime that is effective, easy for employers to comply with and which gives useful information will be very difficult.

Audouze feels it is time for ethnicity pay reporting to be introduced – but she too concedes that implementing such a measure would not be easy.

‘The challenge is to act in the labour market in an organised and efficient way, in favour of a diverse workforce and pay fairness,’ she says. ‘It is also an opportunity for companies to show their participation in this movement in a context where the media and politicians are increasingly attentive to equality.’

Audouze notes however that such pay reporting will be challenging in certain jurisdictions, such as France. In these jurisdictions, ethnic data is considered sensitive information by European data protection regulators, the collection of which is heavily restricted.

Thomas hopes the Black Lives Matter movement creates a new inflection point and call to action that will mirror the catalytic #meToo movement of 2017 and drive employee bodies, companies and governments to take action on diversity and pay equity for ethnic minorities, rather than just paying lip service to the concept.

‘The uncomfortable fact is that wherever pay gaps exist, they indicate inequality in the workplace and a lack of opportunity for all employees to earn the same,’ she says.

The availability of employee data on ethnicity is a key issue for implementation, she says, with many employers not holding staff ethnicity data as they feel asking employees to self-declare is too intrusive.

‘It is crucial to allay employee concerns about why and how personal data is being collected,’ believes Thomas. ‘Best practice employers have launched declaration or internal communication campaigns that aim to build trust and start the conversation more openly about race, so employees feel comfortable disclosing their status.’

The Covid-19 pandemic, meanwhile, has curbed the push for ethnicity pay gap reporting, says Sanchez. ‘The current economic crisis may also mean that there may be little political will to impose reporting obligations on organisations, many of whom may be struggling to stay afloat. Reporting is likely to be complex and to require a considerable amount of administration.’

Indeed, organisations in the UK were relieved of their mandatory obligation to publish a gender pay gap report this year because of Covid-19 – and many companies opted not to publish even though they might have had reports prepared by the time the rules were relaxed. This would suggest that the will – both at a political and an organisational level – to introduce ethnicity pay reporting is not yet strong enough to make it happen.