Ethnicity pay gap: what you need to know

For Black History Month 2023, we’re reflecting on what more we can do to make sure the profession reflects the society it serves. Here, we look at ethnicity pay reporting, what contributes to the ethnicity pay gap and how to start reporting at your organisation.

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Transparency is important; it helps to ensure accountability, highlight where progress has been made, and encourage efforts to continue.

Pay gap reporting is one transparency measure. It is a tool that encourages employers to take action by building accountability for addressing inequalities and creating true inclusion.

In this guidance, we look at ethnicity pay gap reporting; what contributes to the ethnicity pay gap and how to start reporting at your organisation.

Explore more actions for effective transparency using our D&I Framework.

Ethnicity pay gap reporting is currently voluntary for organisations, but it can form an important part of a wider strategic approach to embedding diversity and inclusion.

Although there are no formal legal requirements about how to present an ethnicity pay gap report, the government has issued guidance for employers which should be read in conjunction with the guidance.

What is the ethnicity pay gap? 

The ethnicity pay gap shows the difference in the average pay between all Black, Asian and minority ethnic staff in a workforce and all white staff.

For example, where there is a gap of 15%, this means that the pay of staff from Black, Asian and minority ethnic backgrounds is on average 15% lower than the pay of their white counterparts.

Where possible, firms should use their data to understand pay disparities between different ethnic groups.

Our 2020 Race for Inclusion research report, highlights that Black, Asian and minority ethnic solicitors are earning less overall and occupy fewer senior positions.

This is contributing to an ethnicity pay gap of 25% when comparing hourly pay, which equates to a difference of £9.12 an hour.

Comparing average annual salaries for full-time solicitors, this adds up to a difference of more than £20,000 per year.

The issues surrounding ethnicity pay gaps are not limited to the legal profession.

Pay gap data (ONS 2019) indicates that there are considerable disparities in the kinds of employment and earnings received.

Black African employees earn on average 8% less, Black Afro-Caribbeans 4% less, whilst employees of Bangladeshi or Pakistani heritage earn 14% and 16% less than white employees.

Benefits of ethnicity pay gap reporting 

Driving race equality change

Our diversity and inclusion framework provides organisations with practical steps on how to develop and deliver a strategic approach and action plan.

Ethnicity pay gap reporting is one of a number of tools that employers can use to ensure that they are being fair in pay, reward and recognition.

It can also help your organisation identify where there may be structural issues on how talent from diverse ethnic backgrounds is distributed within the organisation.

Employer of choice

In an increasingly competitive market, pay gap reporting can demonstrate your organisations commitment to anti racism.

It will also create visibility, showcasing you are a forward-thinking organisation, highlighting how seriously you take action on diversity and inclusion.

Showing accountability

Firms that complete ethnicity pay gap reporting will become more accountable for improving their race equality strategy.

It also leads to a better understanding of ethnicity pay gap issues, resulting in organisations driving cultural change.

By capturing this data, it can provide valuable insights highlighting if and where barriers exist, so you can put solutions in place to address barriers and pay disparities.

The business case

Research by the McGregor – Smith Review (2017) shows that closing the ethnicity pay gap makes business and economic sense.

Ethnically and culturally diverse businesses can see up to 36% more profitability, while addressing race inequalities in the labour market could boost the UK economy by £24 billion a year.

What contributes to ethnicity pay gaps?

The factors contributing to ethnicity pay gaps in organisations vary and employers should try to understand the underlying causes for any pay disparities.

Equal pay or unequal pay is not the same as a pay gap.

A pay gap measures the difference between the average pay of men and women.

Equal pay is a legal obligation under the Equalities Act 2010 that requires employers to give men and women equal pay if they are employed to do the same work.

An ethnicity pay gap is a measure of the difference between ethnic groups’ average earnings across an organisation or the labour market as a whole, over a period of time, regardless of role or seniority.

It is not a like-for-like comparison of employees of different ethnicities.

Even if an employer has a fair pay and reward policy, and even if it has equal pay, it could still have a pay gap.

Another major factor which may explain the gap, especially in large law firms, is the lower levels of retention and progression for Black, Asian and minority ethnic solicitors compared to their white peers.

Our Race for Inclusion research highlights the 'stay' and progression gaps and the reasons behind them, including:

  • unfair work allocation
  • a lack of sponsorship opportunities
  • the absence of an inclusive culture

Additionally, Black, Asian and minority ethnic solicitors are more likely to work in smaller firms or less well remunerated areas of law.

Black, Asian and minority ethnic solicitors are underrepresented in larger firms, and sectors like corporate that tend to attract higher salaries.

Introducing pay gap reporting in your practice

When your organisation is exploring how to begin ethnicity pay reporting, there are some useful things to consider.

Analyse your data

Analysing diversity data and being transparent about inclusion in your workforce is an important step towards knowing the challenges your organisation faces and creating real change.

To do this, you need to make sure that you're collecting data from your employees.

For more helpful advice on collecting, analysing and reporting diversity data see our D&I framework.

It is important to build trust with employees to increase the number of people sharing their data.

Explain disclosure rates and run regular campaigns to ensure this is updated and catches new hires.

Confidentiality and communicating how the collected data will be used are key tools in building that trust.

Employers should appreciate that building trust will take time and that they'll need to play a role in creating it.

The best way to do this is to use targeted communications and to be transparent about:

  • why you're collecting data.
  • what you plan to do with the data
  • why accurate data is needed to support targeted work that advances diversity and inclusion
  • how the data has helped to drive change

Plan your methodology

Think about:

  • how you plan to calculate the gap
  • whether you have sufficient data
  • looking at individual ethnic groups

Looking at individual groups will give a more accurate view of the challenges internally and the disparities which exist by ethnic group.

If you don’t have sufficient data on ethnicity, you might want to start by looking at your ethnicity pay gap as a whole to preserve the anonymity of your staff.

You must agree on how you plan to communicate any pay gap you identify.

At this stage, it's important to work with key stakeholders such as internal staff networks.

For more guidance on engaging key stakeholders see step one of our framework.

These networks may also be able to provide further insight into what's driving ethnicity pay gaps at your organisation.

The networks can also play an important role in encouraging people to share their data and informing an action plan.

Analyse the impact

It's important to complete analysis to understand the key drivers of the gap and work to build communications on this basis.

This should include analysis of intersectionality and other data points that will influence your data (for example, office location) to help you understand the key causes of gaps.

As highlighted in our Race for Inclusion research, Black, Asian and minority ethnic solicitors see slower career development up to and including partner status, again impacting on retention rates.

The report also highlighted around half of Black, Asian and minority ethnic women solicitors have moved firm or sector from 2015 to 2020.

Take action to close the gap

Once the gap is identified, work with relevant stakeholders to build a plan on how the organisation can take action to close the gap.

In terms of presenting pay gap data, this needs to be balanced against the data becoming too granular, which risks losing the clarity of the message.

Reporting must go beyond describing a problem and lead to real action to address it.

Publishing your action plan keeps the organisation accountable for closing the gap.

As an organisation you may also want to take a holistic approach. The gap itself is only one part of the wider context. As an organisation you can speak about your wider work to improve inclusivity.

As an example, you could reference an action plan you have implemented to improve retention rates for Black and minority ethnic talent.

The D&I framework includes useful information on developing an action plan section.

Up until the publication of the government guidance on ethnicity pay gap reporting, many organisations chose to use statutory gender pay gap reporting to inform how they would calculate their ethnicity pay gap.

Some organisations have already gone further, doing the calculation in a different way to provide a clearer view of the pay gap, for example, publishing their ethnicity pay gap no matter their organisation size or publishing equity partner pay.

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