Diversity and Inclusion (D&I) data is critically important. It informs meaningful actions employers can take to tackle pay disparities and position your organisation as an employer of choice, as well as to meet stakeholders’ expectations of your Environmental, Social and Governance (ESG) agenda.

What's the opportunity?

In its policy paper - Inclusive Britain: Government response to the Commission on Race and Ethnic Disparities published on 17 March 2022 – the UK government confirmed that it won’t introduce mandatory Ethnicity Pay Gap (EPG) reporting.

Yet notwithstanding the absence of a mandatory requirement, voluntary employer engagement with EPG reporting is increasing.  According to the House of Commons’ Women and Equalities Committee (WEC) report on 2 February 2022, 19 percent of employers voluntarily published their EPG data in 2021 compared to 11 percent in 2018 – an increase of around 73 percent.

However, the percentage of employers who voluntarily report their EPG remains low in absolute terms. Why might this be, particularly when voluntary EPG and other pay gap reporting let employers secure a competitive advantage in the struggle for talent?     

The answer might lie in a misunderstanding of data protection issues. The WEC report highlighted uncertainty amongst employers on how to approach the challenges associated with collecting, processing and reporting employee data.  Specifically, there’s confusion around what employers can and cannot do, discouraging them from reporting more broadly on pay gap data beyond the, now familiar, mandatory gender pay gap (GPG) reporting requirement.

This article looks to bust myths and address concerns we’ve seen, and supported employers with, in practice.

Approached properly and with sensitivity, data protection can actually act as a powerful enabler of voluntary pay gap reporting by giving employees the confidence to share their relevant personal data and make a positive contribution to D&I strategies.

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Myth 1: ‘We aren’t allowed to collect employee data’

Actually, you are, but it needs careful consideration.  Protected characteristics under the Equality Act 2010 include race, ethnicity and sex. Some of those characteristics, including race and ethnicity are forms of ’special category data’ under data protection legislation and require added protection.

Myth 2: ‘Employees don’t want to disclose their data’

In our view, employees are more likely to share relevant data if they believe it will make a positive difference to D&I programmes. But data privacy is a prominent issue for us all.  We are receiving increasing requests to support employers with positive communications to their workforce encouraging employees to disclose their sex, ethnicity and other protected characteristics on a voluntary basis as part of a drive to support employers’ D&I strategy and action planning.

Employees have the right to choose whether they disclose protected characteristic data. Helping them understand the purpose for the disclosure may help increase disclosure rates if employees know that that the purpose of the reporting is to better understand and address diversity and social equality barriers in the workplace, construct action plans to improve working conditions for ethnic minority groups and promote broader inclusion. 

When done correctly, employers can demonstrate their commitment to improve the workplace for disadvantaged groups and ease employee concerns regarding their data and privacy.   One particularly successful route is to make it clear that while completing the form is mandatory, there will always be an option of ‘prefer not to say’, or similar.  This combats any apathy towards form filling by contributing to D&I agendas.

Myth 3: ’Publishing the data might lead to complaints of discrimination’

Once the data is collected (again, on a voluntary basis), it should be disaggregated from any sort of binary options and be anonymised.   

The data should not be used to make decisions or implement policies or procedures which directly or indirectly cause unlawful detriment and/or put employees with a particular characteristic at an unlawful disadvantage.  This would likely be considered discriminatory and justify complaints.

Equally, positive discrimination to meet hiring targets is likely to be discriminatory and cannot be objectively justified.  There may be allowance for some 'positive action' where an employer might treat an employee with a particular protected characteristic more favourably than others, but you should seek legal advice before contemplating any action.

Knowledge that the correct steps are being taken by an employer is likely to increase the number of disclosures by employees, providing larger sample sizes and more accurate, reliable pay gap data.  It is also likely to eliminate the prospect of complaints and, in turn, assist employers to develop and implement plans which might reduce discrepancies in pay and other benefits.

Myth 4: ‘We can’t store personal sensitive information’

This isn’t true, as employers can collect, store and process sensitive personal information provided they comply with data protection legislation.

But special categories of personal data, such ethnicity and sexual orientation, require special treatment and higher levels of security than other data. Such data should be processed and stored confidentiality and anonymously wherever possible.   Personal data held on a portable storage device should be password protected and securely encrypted and access rights to personal data should be reviewed regularly to minimise the risk of unauthorised disclosure.

The way in which personal data is treated will depend on the nature of the data, the needs of the data subject and the employer’s resources.  You should take advice if you are unsure whether the steps you are taking are appropriate or sufficient.

So in conclusion, data protection and storage are not barriers to ethnicity or other pay gap reporting so long as they are managed properly.

Myth 5: ‘There isn’t technology to process the data so it’s too time consuming’

We believe there will be a drive by employers who are invested and proactive when it comes to workforce pay equality to build tools to collate and process employee data (while taking into account any data protection requirements).  We’re already seeing this in the market. For example, KPMG has developed a sophisticated reporting tool supporting all aspects of fair pay, including GPG and EPG reporting.  Automation of these processes not only simplifies processes for employers, but allows sophisticated analysis to understand potential causes of pay gaps and the actions that can be taken to address them.

Is it time to go beyond GPG?

Employers who go beyond GPG to compile and report other pay gap data can strengthen their ESG agendas, improve their D&I programmes, and so secure a competitive advantage in the market for talent.

With the 2022 mandatory GPG reporting deadline now passed, it’s an ideal time to consider what voluntary pay gap reporting might be right for your business in the year ahead.

The Department of Business, Innovation and Skill is expected to publish guidance on voluntary EPG reporting this summer. Employers who are interested in the potential advantages of voluntary reporting should therefore now start to consider their systems and process for compiling, handling, and analysing the relevant data.

Key considerations include what employee communication might be required to improve the size and quality of relevant data sets, ensuring data protection procedures are robust, and confirming how HR technology can support voluntary reporting.   

We have extensive experience working with early adopters of EPG reporting and are currently supporting clients to consider how to go beyond GPG to support their D&I and ESG agendas.

For more information on how KPMG can support your data protection needs, pay gap reports or broader policies and procedures, get in touch with Donna Sharp, Isabel Ost, or your usual KPMG contact; or visit our Data, Digital and Technology webpages and dedicated pay gap reporting page.