Last month, the Labour Party pledged to extend full equal pay rights to ethnic minority workers and disabled workers if they win the upcoming General Election. Part of this proposed Race Equality Act includes requiring large employers to publish their ethnicity pay gap to reveal any disparities in wages.

Ethnicity pay gap reporting has been part of governmental discussions and consultations for the past eight years, however little action has been taken. This is in spite of the fact that The McGregor-Smith Review recommended that the government should legislate mandatory ethnicity pay reporting and more than 9 out of 10 (91%) employers and business organisations were supportive of this same proposal.

National statistics consistently show that UK-born white employees earn more on average than most ethnic minority employees, but without mandatory firm-level reporting we will never know how this plays out from employer to employer. Labour’s announcement is a welcome move as transparency of this is an essential step. But is transparency enough?

Gender pay gap reporting has been mandatory since 2017 – again only for organisations with 250 or more employees – however the current framework does not take into account factors such as part-time working arrangements, caring responsibilities, and social mobility, amongst others. These legal reporting requirements have not been a silver bullet for women in the workplace. Beyond the headline figures it is hard to know what progress, if any, is being made given that it is not compulsory for employers to disclose what they think the key drivers behind their gender pay gap are, or the action they are taking to close the gap.

Academic researcher Leonor Guedes Soares is analysing company reports to assess the impact that mandatory gender pay gap reporting has had. She told us:

“Overall, the success of regulatory intervention aimed at encouraging adoption of policies to improve gender pay equality in the workplace seems to be limited.

"For example, since the introduction of mandatory gender pay gap reporting in 2017, only 20 public companies out of 118 whose policies we have examined closely, report having a returners programme/policy that supports employees returning to work following a career break such as parental leave or a long-term absence.”

These types of employer interventions, according to recommendations made by the UK Government, are expected to close the gender pay gap – and so if companies were serious about addressing theirs, we would expect to see more activity of this kind.

Policy is only part of the picture – how will the data be captured?

There are also data capture limitations to mandatory reporting given that employees can be hesitant to disclose personal data related to their ethnicity. For that reason, fostering a supportive organisational culture is crucial for workplace policies to work. A psychologically safe culture – and evidence that an employer is committed to overcoming workplace inequalities – builds trust, encourages employees to disclose their protected characteristics, and provides reassurance that the information they share is used to create further positive action.

Case study: Santander UK

Through a successful data disclosure campaign and ongoing work to embed belonging and psychological safety into its organisational strategy, Santander UK was able to significantly improve its data disclosure rate for ethnicity by 5% within a 12-month period. As of August 2023, its overall disclosure rate was 80.6%, providing a strong visibility of ethnicity across the organisation.

Santander UK recognised that it is vital to build on that culture of inclusion and psychological safety when asking colleagues to disclose their personal data. As such they made sure to:

• Provide reassurance about how the data will be used, stored, and accessed.
• Emphasise that data is aggregated and anonymised so no individual will be identifiable.
• Ensure that people can change or remove their data at any time in the future if they wish.

SMEs will be a blindspot

At the start of 2023, the number of private sector businesses in the UK was 5.6 million, but only 8,000 of these were large employers. This means that 99.86% of the sector are SMEs who will be excluded from the reporting requirements, and so the overwhelming majority of private sector employees will not be represented in this data. This is a limitation which is also associated with gender pay gap reporting.

So, what will mandatory ethnicity pay gap reporting really look like? Could the ethnicity pay gap data for SMEs be reported and presented collectively? How should the data be disaggregated? Labour’s plans prompt a lot of questions as to how transparency, representation, and equity will actually be captured and understood – but it is positive to see plans for action in this area after years of debate.

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