Written by Nick Jones, employment partner at law firm, Shakespeare Martineau.

Ethnicity pay reporting is used to collect and analyse data on the ethnicity of employees and the pay they receive. The data can then be used to identify any potential gaps in pay between employees of different ethnic backgrounds and make informed decisions about pay structure and any necessary changes.

Any business, irrespective of size, can submit a report, however, unlike the gender pay gap reporting which is mandatory for employers with a minimum of 250 employees, ethnicity reporting is entirely voluntary. Although employers are not required to collect or publish their ethnicity report findings, some do so to improve workforce progression.

The Government’s guidance is designed to support businesses as they approach the next ethnicity reporting deadline in 2024. Whilst it was previously stated that those who report their findings must also show a plan around how they intend to close the gap where possible, businesses should know that this is not mandatory, although any figures released will no doubt be scrutinised.

The ethnicity reporting guidance outlines a series of steps to follow and equips employers with a systematic approach when conducting their ethnicity pay gap report. The process has been designed to integrate with existing gender pay gap reporting, allowing businesses to complete both simultaneously.

Conducting an ethnicity report can benefit businesses in numerous ways, including fostering an atmosphere of transparency and accountability to build trust amongst employees. By using the Government’s reporting strategy, businesses can showcase their dedication to promoting diversity and inclusivity in the workplace, demonstrate a willingness to take responsibility for any disparities that may exist, and proactively address them.

Another benefit of ethnicity reporting is that it promotes a culture of dialogue and engagement among staff, encouraging them to hold open conversations about diversity and inclusion, and also allows employers to work collaboratively with their staff to address any related issues. Additionally, ethnicity reporting can aid in recruitment and retention efforts by promoting a diverse and inclusive workplace, which can make employees of diverse ethnic backgrounds feel more at ease working within the organisation.

Creating a diverse workplace not only enhances a business’ reputation and brand but also encourages a positive image amongst customers and clients. It’s evident that companies with diverse teams and individuals with various backgrounds, viewpoints, and understandings tend to perform better and can make a business more innovative.

However, businesses must also be cautious of potential drawbacks to making their ethnicity reporting public. While there is no legal obligation to take part in the Government’s ethnicity reporting scheme, publicly disclosing such information may carry certain risks. If any disparities are identified, individuals may use the report as evidence in legal cases against the business. Additionally, identifying a pay gap may pose a reputational risk to a business which can result in adverse publicity and lower employee morale. As a result, competitors could seem like the ideal choice for customers, clients, and even employees.

It is also important for businesses to note that if they do decide to conduct an ethnicity report, then they must follow through with further or subsequent action to address any issues that are discovered. If businesses fail to do this, then this can also result in bad publicity as well as staff retention issues and people leaving the organisation.

Smaller businesses that are considering ethnicity reporting must be careful as their reports may inadvertently reveal the identity of specific individuals. This is why previous reporting initiatives, such as gender pay gap reporting, have been typically reserved for larger employers to mitigate the risk of individual identification.

Before conducting ethnicity reporting, businesses must carefully review Government advice, consider the ethnic groups represented in their workplace, and obtain the necessary information regarding ethnicity pay for the report. Seeking advice from an external professional may be beneficial for employers who are considering the positives and negatives of this type of reporting and need legal guidance.

There is no doubt that ethnicity reporting has many benefits that can help employees, employers, and the overall business. It can boost productivity, improve employee satisfaction and establish a better working environment for everyone. Through transparency and accountability, everyone in the workplace can feel at ease and comfortable, creating an environment of trust which is essential for the success of any organisation.