The UK Government’s publication of voluntary guidance for employers on ethnicity pay reporting is a welcome step forward. Approximately 20% of UK employers have already chosen to report their ethnicity pay gap so, for them, this guidance is a useful reference guide on how to bolster or improve their current reporting system. For those not yet reporting, there are benefits in doing so with the guidance providing a useful framework to start from.

According to the Scottish Government, there has been a persistent ethnicity pay gap in Scotland, with figures from 2019 disclosing a 10.3% pay gap. There will be many reasons for this with the gap varying depending on local demographics, sector, and the availability of the data. As we learned from gender pay gap reporting, the existence of a pay gap does not automatically indicate there is workplace discrimination. There are wider factors, some of which are within an employer’s control but many others that are not.

Within the construction industry, one factor affecting the pay gap is the low level of ethnic minority representation. Figures released last year showed ethnic minorities accounting for only 1.6% of the Scottish construction workforce sector compared with 4.3% of ethnic minority workers in Scotland.

Ethnicity pay gap reporting is complex but this newly published guidance will support employers who want to report or modify their existing approach.

Employers are advised to identify the appropriate ethnicity classification structure, review the data, look for explanations on pay disparities, produce a narrative, and draft an action plan.
The guidance lists a range of calculations around pay and bonus gaps and instructs employers to gather information on the ethnicity representation in the organisation, including understanding the number of employees who prefer not to say as part of any data gathering exercise.

The quality of diversity data is key with ethnicity pay reporting; incomplete data will distort the pay gap figure. Employers are encouraged to resist reporting a single figure ethnicity pay gap showing the difference between white and all ethnic minority staff, and instead consider highlighting a breakdown of key ethnic groups.

The blunt question is, given the complexity, and the lack of compulsion to do so, why should employers report? The most obvious benefit lies in attracting talent. With the construction industry currently suffering from skills shortages, taking steps which will help attract a more ethnically diverse workforce will increase the talent pool. The Scottish Government has produced a toolkit for employers which, although focused on the public sector, is relevant to any employer looking for direction in this area.

From a procurement perspective, being able to explain your plans to tackle your ethnicity pay gap will only serve to enhance your credentials. Companies are also being judged on how they treat their workers as part of the social aspect of ESG. Investors, as well as current and prospective employees, want to know about tangible diversity and inclusion practices, and are increasingly interested in workforce data. Reporting an ethnicity pay gap and any associated action plan is a clear indicator of a socially responsible business.

• Catriona Aldridge is a partner and employment law specialist at law firm CMS