The Labour Party, which secured an election victory in the United Kingdom in early July, recently outlined its legislative agenda for the next Parliamentary Session.
The “King’s Speech” was delivered on July 17 and set forth plans to extend its equal pay law to address “ethnic minorities and disabled people.” The party will produce an Employment Rights Bill within the first 100 days, and include a Draft Equality (Race and Disability) Bill to be voted on.
If passed, this would likely extend to the UK’s current gender pay gap reporting requirements for employers with 250 or more employees. Thus, employers would need to include mean and median pay gaps across race/ethnicity and gender.
Potential Updates to Employer Reporting Obligations
The Draft Equality Bill, as outlined in the King’s Speech, promises to:
- Enshrine in law the full right to equal pay for ethnic minorities and disabled people; and
- Introduce mandatory ethnicity and disability pay reporting for large employers (i.e., those with 250 or more employees).
While this is a prominent feature in pay equity laws in the U.S., many jurisdictions outside the U.S. only specify gender. The proposed UK law would necessitate that employers begin performing intersectional pay equity analysis to account for true differences across both gender and race/ethnicity.
Conduct an Intersectional Pay Equity Analysis of Your Workforce
Other proposals on equal pay and pay gap reporting were included in the party’s Plan to Make Work Pay. These proposals included:
- To include outsourced workers in gender pay gap and pay ratio reporting.
- Ensuring outsourcing services can “no longer be used by employers to avoid paying equal pay.”
- Requiring large employers to develop, publish and implement action plans to close gender pay gaps.
It’s yet to be determined if these will be factored into the Draft bill but these were stated goals by the Labour Party prior to the election. All of the proposed legislative items would align closely with the reporting requirements outlined under the EU PayTransparency Directive.
Since 2017, public, private, and voluntary sector UK organizations with 250 or more employees have been required to report on their gender pay gap.
The Importance of a True Intersectional Pay Equity Analysis
What’s abundantly clear from the UK government’s proposed agenda is that UK employers should begin preparing for added pay reporting obligations. Namely, reporting on ethnic/racial and disability workers’ pay along with gender pay.
This is a regular practice for organizations in the U.S. However, some employers examine gender and race/ethnicity separately when conducting a pay equity analysis. This means running a multiple regression analysis to examine the relationship between gender and pay, followed by a separate multiple regression analysis to examine the relationship between race/ethnicity and pay (or the relationship between any demographic characteristic and pay).
As our Executive Vice President of Pay Equity and Total Rewards Strategies and Solutions, Gail Greenfield, outlines, this approach is problematic for two reasons.
First, as part of your pay equity analysis, you create a statistical model of pay for each of your Pay Analysis Groups (PAGs). Each model includes Wage Influencing Factors (WIFs), which are compensable factors that one would expect to influence employee pay. The regression weights associated with these WIFs are used to compute an employee’s neutral pay prediction.
If you run separate regression analyses to examine the relationship between gender and pay and between race/ethnicity and pay, you’ll end up with two sets of regression weights and two sets of predicted pay values. Predicted pay values are an important consideration in crafting a remediation strategy, so working with two (or more) sets of predicted pay values will be problematic to reconcile during remediation.
Second, if both race/ethnicity and gender are related to pay, then excluding race/ethnicity from a regression analysis that examines the relationship between gender and pay will result in omitted variable bias. In the words of Statistics By Jim (a great resource!), “Omitted variable bias (OVB) occurs when a regression model excludes a relevant variable. The absence of these critical variables can skew the estimated relationships between variables in the model, potentially leading to erroneous interpretations. This bias can exaggerate, mask, or entirely flip the direction of the estimated relationship between an independent and dependent variable.”
What this means is that to estimate the relationship between gender and pay, the regression analysis should include race/ethnicity as well, plus relevant WIFs. Otherwise, our estimate of the gender effect may incorrectly attribute variation in pay to gender that is actually due to race/ethnicity differences. Similarly, our estimates of the effects of WIFs may incorrectly attribute additional variation in pay to WIFs that is actually due to race/ethnicity differences. If race/ethnicity plays no role in driving pay differences, its inclusion will not systematically distort gender or WIF effect measurements.
UK employers have the opportunity to approach intersectional pay equity analyses correctly from the start, and we can help.
Leverage Legally-Compliant Software to Streamline Your Efforts
Trusaic’s premier pay equity software is the only SaaS solution that performs a true intersectional analysis on the market. This means, our software enables you to conduct a pay equity analysis across your workforce at the intersection of gender, race/ethnicity, age, disability and more in one statistical regression analysis.
By offering an all-encompassing view of your workforce’s compensation, PayParity not only identifies pay inequities but also uncovers their root causes. This invaluable insight will inform your action plan to close pay gaps where necessary.
Employers with reporting obligations in the UK can leverage Trusaic’s three-pronged approach, which is a cut above other software solutions:
- Leverage the Regulatory Pay Transparency Reporting™ solution and easily complete required reporting by compliance deadlines.
- Leverage PayParity® and OpportunityParity™ to understand, explain, and resolve pay disparities. And now, with R.O.S.A., you can optimize the spend of your remediation budget to ensure you are maximizing the ROI of each dollar spent.
- Leverage the Workplace Equity product suite to communicate narratives, the sources of your pay gaps, progress objectives, and corrective measures as required by law. You can show data-backed progress in your pay gaps over time.
Our comprehensive workplace equity software solutions and on-demand expert support is with you every step of the way. With Trusaic, you can proceed with confidence, knowing you are working toward achieving pay equity with the backing of methodology that is legally compliant.
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