How to Do The Calculations For Ethnicity Pay Gap Reporting

How to Do The Calculations For Ethnicity Pay Gap Reporting

Employers are not required by law to conduct ethnicity pay gap reporting but many employers including the NHS, Network Rail, Shell, Lloyds Banking Group, charities such as Barnardos, and WWF do so voluntarily. The UK government provides a framework to follow when doing ethnicity pay gap reporting.

It’s worth following the governmental guidance as you’ll most likely working in line with any future legislation in this area. The government suggests that employers monitor the following areas as part of their ethnicity pay gap reporting.

ethnicity representation at different pay levels in their organisation, and across their organisation as a whole
differences in average pay between ethnic groups
levels of engagement with ethnicity questions

The measures that they believe are worth monitoring are:

percentage of each ethnic group in each hourly pay quarter
mean (average) ethnicity pay gap using hourly pay
median ethnicity pay gap using hourly pay
percentages of employees in different ethnic groups in your organisation
percentage of employees who did not disclose their ethnicity – they either answered ‘prefer not to say’ or gave no answer when you attempted to

If your organization provides bonuses you could also choose to monitor the:

the percentage of each ethnic group receiving bonus pay
the mean (average) pay gap for bonus pay
median ethnicity pay gap for bonus pay.

1.Choosing the ethnic groups to be analysed

Before you get anywhere near a calculator or spreadsheet you’ll need to decide the ethnic groups to be included in your calculations. This will depend on the numbers of employees in different ethnic groups within your organization. The government recommends that you have a minimum number of employees in each ethnic group to comply with GDPR and to ensure statistical robustness.

GDPR

This ensures privacy and that individual employees cannot be identified from the report which ensures compliance with the General Data Protection Regulations (GDPR)

Statistical Robustness

Having a certain number of employees in each ethnic group for your analysis can also help you be confident that the data is robust.

Minimum Category size

If your data is for internal use only it is recommended by government statisticians that the minimum category size should be between 5 and 20 employees

If your data is being externally published it is recommended by government statisticians that the minimum category size should be 50 employees to ensure statistical robustness and privacy.

Having decided your minimum category size you can count the number of employees in each ethnic group you have collected. If some ethnic groups are below the minimum category size some ethnicities will need to be aggregated into larger groups.

Deciding how to aggregate ethnic groups

It is important to try and aggregate as many ethnic groups as possible notwithstanding the above limitations.

Aggregate to 5 larger ethnic groups

Asian
black
mixed
white
other
prefer not to say

The limitations of aggregating like this is that differences between certain ethnic groups could be hidden. For example, according to ONS data Bangladeshi and Pakistani employees generally earn less than those from the Indian ethnic group, but this might not be clear for analysis of a broader ‘Asian’ group.

Aggregate to 2 groups (‘binary’ reporting)

Sometimes it may only be possible to report pay gaps between either

white and all other ethnic minorities combined
white British and ethnic minorities

The government strongly discourages as a first port of call as binary reporting can mask detail and nuance which could be crucial for understanding ethnicity pay gaps and corrective actions. But if you are a smaller employer or have a small number of employees in certain ethnic groups a binary report may be necessary to preserve confidentiality and statistical robustness.

There are now several calculations to be performed your ethnicity pay gap.

The mean (average) ethnicity pay gap using hourly pay and the median median ethnicity pay gap using hourly pay should be calculated and reported in a tabular format like this ideally.

Ethnic group	Mixed	Asian	Black	Other
White	Gap between white and mixed ethnic groups	Gap between white and Asian ethnic groups	Gap between white and black ethnic groups	Gap between white and mixed ethnic groups
Mixed		Gap between mixed and Asian ethnic groups	Gap between mixed and black ethnic groups	Gap between mixed and other ethnic groups
Asian			Gap between Asian and black ethnic groups	Gap between Asian and other ethnic groups
Black				Gap between black and other ethnic groups

The percentage of each ethnic group in each hourly pay quarter

To produce your quarterly pay bands by ethnic category data, you will need to:

Define your pay quarters and assign each employee to a pay quarter.
For each pay quarter, count the number of employees within each ethnic category, ‘prefer not to say’ and those who did not respond.

These steps are the same as those used for gender pay gap reporting except you replace the gender categories with your ethnic categories. If you have aggregated your ethnic groups together, then you will use these aggregated groups for the analysis (along with ‘prefer not to say’ and those who did not respond).

You could present your data using:

the number of employees in each combination of ethnic category and pay quarter
the percentage of employees from each pay quarter that fall in each ethnic category
both of these

Representation of ethnic groups in your organisation

The representation of ethnic groups is simply the percentage of employees falling in each ethnic category you have decided to analyse. This additional data can help contextualise your result for the other calculations, as well as provide more information for decision makers in an organisation about where there may be disparities or barriers in recruitment or progression within the organisation.

Percentage of employees whose ethnicity is ‘unknown’ or ‘prefer not to say’

Publishing, or at least internally reviewing, the number or percentage of employees who choose not to state their ethnicity, or who you were unable to gather this information from, is a useful baseline. You should try to analyse these 2 groups of employees separately.

Percentage of employees in different ethnic groups receiving bonus pay

This calculation shows the percentage of people in different ethnic groups who received bonus pay in the 12 months ending on your snapshot date. Use the list of all relevant employees (not only full-pay relevant employees), including the ethnic group they are in (after aggregation if necessary) and bonus pay. For each ethnic group you are analysing, add together the number of employees in your list in the group who received bonus pay in the 12 months ending on your snapshot date. Divide this figure by the total number of employees in the ethnic group. This gives you the percentage of employees in the ethnic group who received bonus pay.

Mean (average) and median ethnicity pay gap for bonus pay

This calculation shows the difference in the mean (average) bonus and median bonus pay paid to different ethnic groups.

Example: Calculating the mean (average) ethnicity pay gap for bonus pay

Acme Ltd has a mean (average) bonus pay of £1,650 for black African employees, and £1,490 for black Caribbean employees.

To calculate this mean (average) ethnicity pay gap for bonus pay, Acme Ltd:

takes the mean (average) bonus pay for black African employees (£1,650), and subtracts the mean (average) bonus pay for black Caribbean employees (£1,490) – this equals £160
divides £160 by the mean (average) bonus pay for black African employees (£1,650) – this equals 0.097
multiplies 0.097 by 100 to find the mean (average) ethnicity pay gap for bonus pay as a percentage
Acme Ltd has a 9.7% mean (average) ethnicity pay gap using bonus pay between these 2 groups.
This means that, using the mean (average), black Caribbean employees at Acme Ltd are paid 9.7% less in bonus pay than black African employees.
This means for every £1 a black African employee receives in bonus pay at Acme Ltd, a black Caribbean employee receives 90p.

You can read the full government guidance here.

Download my UK Ethnicity Pay Gap Calculator and Reporting Tool 2024