Although the international spotlight is currently on the gender pay gap, gender is not the only area of inequality and underrepresentation within the workplace, and there are many reasons to start paying attention to pay differentials based on race and ethnicity. This article looks at the case for reviewing the ethnicity pay gap and considers the South African experience of ethnicity pay reporting alongside the latest UK proposals to legislate on this topic.

The ethnicity pay gap: more complex than the gender pay gap?

Aside from the obvious point that disadvantaged ethnic groups vary by region, ethnicity is harder to define than gender (which is generally treated as binary). There are multiple ethnic groups but no universally adopted classification system. Individuals may not identify as belonging to a particular group or may identify as belonging to several groups.

In contrast to gender, ethnic or racial origin is much more likely to be a private or confidential matter. In many jurisdictions, collecting this information is restricted by law, including in the EU where ethnic or racial origin is a special category of data protected by the General Data Protection Regulation (GDPR). In many countries, there is a strong cultural attitude that surveying this information about employees is too intrusive, and in a number of countries it is clearly prohibited. Unlike gender, therefore, employers do not necessarily already have the data and may be restricted or regulated in trying to collect it.

The ethnicity pay gap: different causes?

Discrimination and bias is likely to be one of the causes of the ethnicity pay gap, as it is with the gender pay gap. However, in certain countries with a relatively high level of migration, some of the ethnicity pay gap may be accounted for by a lack of language ability or recognized qualifications among recent arrivals, which is not a relevant factor when considering the gender pay gap. Similarly, much of the gender pay gap is driven by motherhood (and its knock-on consequences in terms of career interruption, choice of role and employer), which would not explain the ethnicity pay gap, at least not the ethnicity pay gap between men. In many countries, the position of ethnic minorities will be closely tied to issues of social or educational disadvantage.

Despite the complexity, there is a clear business case for action

regulation globally on this issue at least in the short term, there is a clear business case for improving ethnic diversity within the workplace. Aside from the moral case for equality of opportunity, research suggests a strong link between ethnic/cultural diversity and better business performance.1 Employers with a diverse management team and an inclusive employment brand that appeals to future generations will also be a step ahead in the modern war for talent.2 The recent spotlight on the gender pay gap has exposed the extent to which women are underrepresented in senior and highly paid roles, but there is similar cause for concern in many parts of the globe in relation to underrepresentation of certain ethnic groups. There is a case, therefore, for turning the spotlight to the ethnicity pay gap.

Pay differentials based on race or ethnicity: view from the southern tip of Africa

When considering the need to transform the workplace, casting an eye over the typical South African business underscores the dire need for drastic action. After decades of racial segregation, job reservation and disparate treatment based on race or ethnicity, South Africa finally transformed into a constitutional democracy in 1994. However, 24 years later, the average South African business far from reflects the demographics of the economically active population. By the dawn of democracy, years of massively unequal allocation of resources and state-enforced discrimination resulted in a society with disproportionate levels of skills and education residing in the white ethnic group.

While the statistics show a gradual improvement, the ripple effects of apartheid still leave many black job‑seekers unemployed. As at the final quarter of 2017, 27.1% of black African people between the ages of 15 and 24 were not in education, employment or training. Although this is an improvement for the same group compared to the Q4 2016 figures, the position in respect of white youth in the same age group improved even more (down from 12% in 2016 to 8.2% in 2017). If you were to remove education and training from the data, a staggering 51.1% of youth are unemployed in South Africa. This is doubly sobering when you consider that there are over 37 million people of economically active age in the country. Absorption into the labor market remains a huge challenge, especially for the black population. The unemployment statistics show that black women are the most vulnerable group (34.2% unemployed), with only 6.7% of white South Africans unemployed. The white ethnic group constitutes 8.86% of the population while black South Africans represent 79.2%.

The significant disparity remains despite a constitutional right to equality, progressive employment legislation providing for affirmative action in the workplace, and business laws creating a localization framework in respect of ownership and empowerment of previously disadvantaged groups. The true ethnicity pay gap issue in South Africa is one where black people continue to struggle to find meaningful employment. The Employment Equity Act obliges employers (with more than 50 staff or with a predetermined financial turnover) to annually provide a detailed report to the Department of Labor on various indicators. These indicators include salary differentials between ethnic groups and across different genders. Despite the fact that the act has been in place for over two decades, progress has been slow and disparities remain stark. Reports in 2015 showed significant differences in average salaries between professionals based on gender and ethnicity. White males showed average monthly earnings of ZAR 21,700, white females earned ZAR 17,700, black females ZAR 11,500 and black males ZAR 9,244. White males also showed higher rates of promotion and developmental opportunities than other groups, although they also featured most prominently in termination statistics. While employers are obliged to submit details of salary differentials to the Department of Labor, that aspect of the report remains confidential and is not accessible to the public.

However, there are clear signs that employers will face increased pressure to eliminate pay disparity. Some employers have had to face the ignominy of equal pay claims at the Employment Tribunal and, anecdotally, disputes about equal pay seem to be on the rise. Those employers who failed to submit their employment equity reports (in time or at all) have in many cases felt the wrath of the Department of Labor. There remains much work to do, but the South African Government hopes that the data on pay differentials will assist in creating a better understanding of the scope of the problem and drive home the reality. Progressive employers have taken these results and the guidance contained in the Employment Equity Act to heart and have conducted audits of their employment policies and practices. A particular focus has been on practices that, directly or indirectly, have resulted in unfair discrimination in the workplace and on affirmative action measures to promote the advancement of previously disadvantaged employees (and job applicants). As this topic becomes more of a focus globally, employers still using 1980s-style workplace practices will face greater commercial, legal and societal pressure to mend their ways. As with the outcry globally over gender pay, it is likely to be stakeholder pressure, more than governmental decrees, that will play a meaningful role in changing workplace behavior in relation to hiring, promotion and other workplace practices affecting ethnic pay gaps.

The UK plans to introduce mandatory ethnicity pay gap reporting

Discrimination on the grounds of race (including ethnic origin) has been unlawful in the UK since the 1970s, but disparities still exist. Black and ethnic minority individuals comprise 14% of the UK working age population but make up only 10% of the UK workforce and hold only 6% of top management positions.3 Ethnic minorities are paid less overall than white British employees.

Until recently, the focus in the UK has been on increasing the ethnic diversity on boards of company directors. In 2016, the Parker Review recommended that every FTSE100 company should have at least one ethnic minority director by 2021.4 Most recently, however, the government has announced its intention to introduce a pay transparency requirement in respect of ethnicity, similar to the gender pay reporting requirement that was introduced in 2017. The government has opened a public consultation on the key issues surrounding this extension.5 Key questions for debate include:

  • Should employers report on the position of multiple ethnic groups or roll all classifications of ethnic minority groups into one? In that regard, it is notable that the ethnicity pay gap varies significantly between different ethnic groups, with some ethnic groups experiencing significant pay disadvantage while others apparently have a pay advantage.6
  • Should employers supply contextual data, for example, about their location (given that the population of London and other major cities is more diverse than in other areas)?
  • How should we define and classify different ethnic groups? There is a variety of standard approaches to this in the UK. The 2011 census adopted the approach of five broad groups, with 18 more specific categories.
  • How can we encourage employees to disclose their ethnicity? There is no legal obligation on employees to do so in the UK and many employees will refuse to disclose their ethnicity if asked. How should we reflect non‑disclosure rates in the information reported?
  • What size of employer should be required to report? The current proposal is that only employers with 250 or more employees would be in scope, which is the same as the threshold for triggering the gender pay gap reporting requirement.

The government has not yet set a date for the introduction of ethnicity pay gap reporting and we do not expect it to be imminent given the complexity of the issue. However, regulators in other jurisdictions will no doubt be watching with interest. In the meantime, some large UK employers have started to report their ethnicity gap on a voluntary basis, alongside their gender pay gap reports. Given the increasing focus on this issue, UK employers should consider getting ahead by ensuring that they have a focus on measures to address the ethnicity gap:

  • The first step is to ask employees to voluntarily disclose their ethnicity. Experience from employers who have done this is that response rates may initially be low as it takes some years to build the necessary trust among the workforce to report this data.
  • Many of the interventions that employers are focusing on reflect the link with social/educational disadvantage and are aimed at outreach to schools and colleges in disadvantaged areas.
  • The 2017 McGregor-Smith Review into Race in the Workplace made a number of recommendations for measures that employers can take in the workplace. These include conducting mandatory unconscious bias training, rejecting non-diverse candidate lists, challenging school and university selection bias, changing job specifications, having diverse interview panels, stopping unpaid internships and conducting reverse mentoring (where senior leaders are mentored by junior individuals from different backgrounds).