UK: Employee Diversity Reporting—The Requirements, Risks, and Potential Rewards

Employee data is a valuable commodity, not least because such data is needed in order to comply with an ever-increasing raft of legal obligations. Data is also needed for employers to be able to track progress against metrics introduced in employee remuneration arrangements, including metrics linked to diversity at senior management levels.

Employee diversity data also serves a broader purpose for employers’ inclusion and diversity (I&D) initiatives. It enables employers to understand their baseline diversity, develop appropriate initiatives to improve I&D, monitor progress against such initiatives, identify potential barriers to progress, and select the most effective interventions.

However, employers first need to be able to collect, store, and analyze such data for it to be useful. Employees must also be willing to provide data in the first place, which relies on there being a trusting and cooperative workplace culture.

This article considers current employee diversity reporting initiatives in the U.K. It also explores some of the potential conflicts that could arise between different regimes, highlights some of the risks to employers when collating and reporting employee diversity data, and provides some practical tips to manage those risks.

Why Does Diversity Reporting Matter?

While diversity within the workforce is a worthwhile goal from an ethical perspective, it also yields commercial rewards. There is a statistically significant and consistent correlation on a global scale between diversity in leadership teams and financial outperformance against competitors. 

In addition, investors, clients, and suppliers are increasingly expecting businesses to demonstrate a commitment to diversity and reflect their own diverse profiles. The weight of expectations has been growing for some time but was accelerated in the immediate aftermath of the COVID-19 pandemic, which exposed various inequalities and precipitated enormous changes to working practices. Diversity reporting can serve as a comparative metric across companies, industries, and jurisdictions, enabling companies to differentiate themselves from their competitors. This can both encourage a sense of healthy competition and inspire underperformers to take steps to improve.

Given the importance of organizational diversity, it is essential that employers have effective mechanisms in place to measure their existing diversity, evaluate the effectiveness of their current I&D practices, and plan for targeted improvements.

Diversity Reporting Initiatives

In recent years, the U.K. has introduced several mandatory reporting requirements for certain employers. There are also reporting initiatives that, although voluntary at present, are expected to become mandatory in the coming years. These initiatives principally relate to remuneration, although it is likely that broader reporting requirements will be introduced in the future.

Even when employers are not strictly subject to mandatory requirements, many have decided to opt in, as a result of either a wish to emulate good practice or pressure from industry.

Mandatory Remuneration Reporting

Gender Pay Gap Reporting

Under the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, U.K. private-sector employers with 250 or more employees must publish an annual gender pay gap report covering:

• The overall gender pay gap figures for relevant employees, calculated using both the mean and median average hourly pay.
• The proportion of women and men in each of four pay quartiles.
• The gender bonus gap.
• The proportion of male and female employees who received a bonus in the same 12-month period.

The report must be published within 12 months on the company’s website, and must be kept online and publicly available for three years. The information must also be published on a government website.

Compared with other countries that have introduced similar reporting requirements, the U.K. takes a relatively light-touch approach to gender pay gap reporting. There is no requirement for private-sector employers to provide any information about policies that are put in place to improve gender equality, or to produce a corrective action plan. While employers have the option of including a narrative explaining their pay gaps and setting out what action, if any, they plan to take to address them, this is not mandatory for private-sector employers. Duties on public-sector employers vary by nation within the U.K., with Wales requiring an action plan where gender pay differences are identified, but England and Scotland having no such requirement. 

While the gender pay gap for full-time employees has been gradually decreasing since 1997, over the same period, the part-time gender pay gap has stayed small or negative (meaning that men earn less than women). The most recent figures show that the gap still persists, with 79% of reporting employers stating that median hourly pay was higher for men than for women in their organization, while 13% of employers stated that median hourly pay was higher for women, and 8% stated that median hourly pay was the same for women as for men.

In the event that organizations fail to publish their gender pay gap data, Great Britain’s Equality and Human Rights Commission (EHRC) has the authority to send a notice warning of formal enforcement action, including enforceable action plans or investigations, if the organization is in breach of equality law. In the event that organizations do not implement the required actions, the EHRC can seek a court order to impose an unlimited fine. Indeed, on July 6, 2023, the EHRC issued a press release that “named and shamed” eight employers that failed to report their gender pay gap data for 2022-2023. The EHRC sent warning notices to 730 organizations that had missed their 2022-2023 reporting deadlines in March and April 2023 and, consequently, publicly shamed the organizations that had still not reported their data.

Other countries have more onerous reporting in place. For example: 

• In Australia, relevant private-sector employers are required to provide details on the availability and use of a range of different policies, including those relating to recruitment, retention, flexible working, and employer-funded parental leave.
• In France, failure by relevant private-sector employers to gain an adequate score across a set of gender pay gap indicators means an action plan must be agreed either through negotiations with trade unions or consultation with employee representatives within an organization. If the annual report indicates that the company is below a minimum level, the company must take measures to improve the annual indicators within three years or else face an administrative penalty of up to 1% of payroll.

In July 2023, the Treasury Committee launched an inquiry into Sexism in the City, and the resulting report was published on March 8. The report highlighted the little progress being made in reducing the average gender pay gap in financial services, which remains the largest gender pay gap of any sector in the U.K. economy. Contributors to the inquiry thought that while the current pay gap regulations had aided transparency and kick-started meaningful conversations, they had limited effectiveness in reducing pay gaps.

Recommendations to enhance the effectiveness of the pay gap reporting regulations included a requirement for firms to publish a narrative explaining the reasons behind their pay gap, together with an action plan elucidating how they aim to minimize it. Contributors also recommended reducing the size threshold for firms to be subject to the regulations and extending the reporting requirements to provide for more granular information on pay gaps to gain clarification on where most attention is needed. However, His Majesty’s Treasury confirmed that it does not intend to move forward with any of the recommendations, citing that reporting alone is ineffective in reducing the gender pay gap and that companies’ efforts would be better focused on understanding their own particular issues and what specific actions are needed to address them.

On March 21, the U.K. Department for Business and Trade published a summary of its responses as part of a nonfinancial reporting review, which considered the potential options for refreshing and rationalizing current reporting requirements. As a result of the review, the government intends to make several legislative changes, with a key proposal being to streamline reporting requirements by removing duplicate and “low value” disclosure requirements from the Directors’ Report and Remuneration Report (and thereby the annual report). Namely, from Oct. 1, the requirement under the Companies Act 2006 for companies with, on average more than 250 employees in a year, to report on the company’s policy with respect of disabled people will be removed, the rationale being that the Equality Act 2010 already requires employers to not discriminate based on a protected characteristic such as disability and, consequently, it was unclear whether there was a need for a separate reporting requirement.

Finally, to mark International Women’s Day, the Minister for Women announced a pay transparency pilot scheme to improve pay transparency and address pay inequality. The scheme would require participating employers to include information about salary details in job advertisements and refrain from asking candidates to disclose their salary history. However, on May 17, the Government Equalities Office announced that it has paused the pilot scheme, stating that the government intends to learn from countries exploring legislative options first, before taking further action.

CEO Pay Gap Reporting

The reporting obligation, imposed by the Companies (Miscellaneous Reporting) Regulations 2018, requires all publicly listed firms with more than 250 U.K. employees to publish the ratio between the total remuneration of their chief executive officer (CEO) and the full-time equivalent remuneration of their U.K. employees in the 25th, 50th (median), and 75th percentiles in their annual directors’ remuneration report.

Unlike the gender pay gap reporting requirements, the CEO pay gap reporting requirements stipulate that companies must provide a supporting narrative that explains:

• The reasons for any year-to-year reductions or increases in the ratios.
• Whether the company believes the median ratio is consistent with the organization’s wider policies on employee pay, reward, and progression.
• Which of the three available options the company has used to calculate the ratio, and why it chose that option.

While not overtly related to diversity in the same way as gender pay gap reporting, the purpose of CEO pay gap reporting is to indicate the relationship between the pay of the CEO and the pay of other, more junior employees in the same company. This goes to the broader concepts of increasing fairness and equality within the company and supporting social diversity.

A study in December 2023 revealed that the median CEO-to-median-employee pay ratio across the FTSE 350 was 57:1 in 2022, slightly up from 56:1 in 2021. Across the larger FTSE 100 companies, the gaps were wider, with a median CEO-to-median-employee pay ratio of 80:1 and a median CEO-to-lower-quartile-employee ratio of 118:1.

Voluntary Remuneration Reporting

Ethnicity Pay Gap Reporting

Six months after the first gender pay gap reporting deadline, the U.K. government launched a consultation on the proposed introduction of mandatory ethnicity pay gap reporting. This consultation, which ended on Jan. 11, 2019, focused on how, not whether, ethnicity pay reporting should be introduced. The combination of Brexit and the pandemic has, however, effectively stalled progress on ethnicity pay gap reporting.

In 2021, there were fresh calls for the U.K. government to introduce mandatory ethnicity pay gap reporting as one way of addressing social inequalities for ethnic minorities (in part due to the increased focus on racial inequality in connection with the pandemic and the international resurgence of the Black Lives Matter movement). However, apparently motivated by a concern around “imposing new reporting burdens on businesses as they recover from the pandemic,” the U.K. government confirmed in March 2022 that mandatory ethnicity pay gap requirements for U.K. employers would not be implemented “at this stage.”

Ethnicity pay gap reporting involves a complex set of data, and achieving transparency in this area represents a greater challenge than gender pay gap reporting. There are different approaches available to employers that choose voluntarily to report:

• One approach is to present a single pay gap figure, showing the pay of ethnic groups as a percentage of white employees. This has the advantage of simplicity but is potentially a damagingly homogeneous approach and, as such, could reduce the quality of information produced.
• An alternative approach is to produce several pay gap figures, using a classification system based on a greater number of ethnic groups. This would be instructive but much more complex, expensive, and time-consuming to produce. There are also several classification systems available, and some employers will have developed their own system to reflect the demographics of their own workforce. There is, therefore, the potential for inconsistency, making it difficult to draw useful comparisons between organizations and across industries.
• A third approach would combine both the white and nonwhite binary reporting with a more complex disaggregation of ethnicity pay comparisons. While this would still be complex, the headline figure could be used to give a simple snapshot of an employer’s ethnicity pay gaps while the comparisons by each race could be used to enrich the explanatory narrative.

A prerequisite to meaningful reporting is having an accurate set of data to work with, but many employers either do not collect data relating to ethnic origin, or else suffer from a low declaration rate, with employees unwilling to state their ethnic origin, potentially due to fear of suffering discrimination as a result. Employers, therefore, may simply not have enough reliable information from which to draw meaningful conclusions.

In April 2023, the U.K. government issued some highly anticipated new ethnicity pay gap reporting guidance. This guidance “strongly discourages” binary reporting, recommends that employers “try to show as many different ethnic groups as possible in the analysis,” and refers to the ethnicity classifications in the most recent U.K. census. Much of the guidance, including the methodology for the calculations, mirrors the approach set out in the guidance for gender pay gap reporting, streamlining the process for employers. The guidance suggests that employers report on the proportion of employees that did not disclose their ethnicity when asked, which highlights the importance of investing time and effort in implementing effective communication with employees to drive up response rates.

The guidance also encourages employers to scrutinize the underlying causes of any pay disparities and suggests that, as well as publishing an accompanying narrative, employers could publish an action plan explaining how they intend to address any ethnicity pay gaps.

In March 2023, the Parker Review Committee published an update report, “Improving the Ethnic Diversity of U.K. Business,” noting “remarkable progress” made so far, as well as some of the remaining issues to be addressed. With these challenges in mind, the Parker Review now encourages companies to enhance the quality of their ethnicity data with a set of best practice recommendations. The Parker Review proposes that companies aim for a minimum rate of 80% ethnicity self-identification reporting and encourages companies to record in their annual reports the percentage of employees who have self-identified and shared their ethnicity data with the company. The most recent update report from the Parker Review Committee found that 70% of companies on the FTSE 250 Index have met their core target of having at least one ethnic minority director on the board, compared to 60% in 2022.

Disability Pay Gap Reporting

In November 2018, the U.K. government published a voluntary reporting framework to support employers to report and publish information on disability, well-being, and mental health in the workplace. While primarily aimed at employers with over 250 employees, it is also intended to be used by smaller employers that want to increase transparency within their organization.

The framework recommends that employers report the following:

• A narrative explaining the organization’s activities in relation to the recruitment and retention of people with disabilities, including organizational policies, support offered to employees with specific disabilities, the role of network and support groups, progression and pay of employees with disabilities, workplace adjustments, and employee engagement scores.
• The percentage of individuals within the organization who consider themselves to be disabled or have a long-term physical or mental health condition.

This voluntary disability reporting framework was cited by the government (along with logistical difficulties) as a reason for its rejection on May 14, 2021, of calls to introduce disability pay gap reporting. This was despite research by the Trades Union Congress that showed that workers with disabilities earn 15% less than other workers and are significantly less likely to be employed at all (the employment rate for people with disabilities was 52.6% in June 2019, compared with 81.5% for those who were not classified as having disabilities).

More recently, there has been growing external pressure on the government to establish mandatory disability reporting. On Nov. 2, 2022, the Institute of Directors called for mandatory reporting to help close the pay gap suffered by disabled workers in Scotland, after Office for National Statistics figures were published showing that this was the biggest gap in the U.K. Meanwhile, on Nov. 7, 2022, the Trades Union Congress called on the government to introduce mandatory disability pay gap reporting for all employers with more than 50 employees, and to require employers to create action plans identifying steps that will be taken to address any gaps. 

Notably, the Labor Party has pledged to make reporting gender, disability, and ethnicity pay gaps mandatory, with the publication of ethnicity pay gaps being made compulsory for firms with more than 250 workers to bring this in line with gender pay gap reporting.

Other Reporting Initiatives

More broadly, there is likely to be a growing trend (and potentially a legal obligation) for employers to report on the diversity of their workforce outside the area of remuneration:

• In July 2019, the government consulted on a proposal to require large employers to publish their parental leave and pay policies. The response to this consultation has not yet been published, but the government has committed to responding in due course.
• In April 2022, the Financial Conduct Authority (FCA) released a policy statement to improve transparency on the diversity of boards and executive management by introducing two new listing rules requiring listed companies to include a statement in their annual financial report setting out whether they have met specific board diversity targets on a “comply or explain” basis. The targets are: 1) 40% of board seats and at least one of the senior board positions should be held by women; and 2) at least one member of the board should be from a nonwhite ethnic minority background. For the time being, the FCA has decided not to extend reporting to other categories such as sexual orientation or socioeconomic background. The rules are applicable to listed companies for financial accounting periods starting April 1, 2022, and the FCA will review the rules in 2025 to ensure that they are working and determine if the diversity targets are still appropriate.
• Even without government intervention, a number of voluntary initiatives have encouraged employers to report on diversity statistics, with an impact on wider business culture. For example, the U.K. Race at Work Charter asks signatories to capture ethnicity data to establish a baseline and publicize progress, while the Women in Finance Charter requires signatories to publicly report on progress to deliver against internal targets for the progression of women into the executive pipeline. In May 2022, the 30% Club U.K. Investor Group published guidance on diversity reporting, which places emphasis on quality over quantity and encourages employers to explain what action they are taking to improve diversity alongside their reports.
• Although it is not a protected characteristic under the Equality Act, U.K. employers are increasingly choosing to track the socioeconomic backgrounds of their workforce.
• In July 2022, the Women and Equalities Committee published a report seeking to further the protection of individuals affected by menopause, including a call for the government to make menopause a protected characteristic under the Equality Act 2010. On Jan. 24, 2023, the government confirmed that it would not amend the legislation as suggested. It also ruled out the introduction of menopause leave. Despite refusing to agree to these various proposals, the government did accept in principle the recommendation for a government-appointed individual to occupy the newly created role of menopause ambassador to work with business stakeholders on growing awareness of the ways in which employees are impacted by menopause. This reflects the fact that menopause remains an important subject for employers, not least because menopausal women are the fastest-growing demographic in the workplace.
• In November 2023, the Financial Reporting Committee (FRC) published a review of corporate governance reporting of 100 premium listed companies that are required under the Listing Rules to follow the Corporate Governance Code (the Code). While the FRC praised the rise in diversity policies included in annual reports, they found that there were particular weaknesses in reporting against Provision 23 of the Code. This requires each company to disclose its policy on I&D; its objectives and linkage to company strategy; how it has been implemented and progress on achieving the objectives; and the gender balance of those in senior management and their direct reports. For example, the FRC found the link between I&D policy and company strategy to be particularly weak.
• A significant development in gender pay gap reporting in the European Union is the EU Pay Transparency Directive. As of May 17, 2023, companies with more than 250 employees are required to report annually on the gender pay gap in their organization to the relevant national authority, while smaller organizations need to report every three years. Organizations with fewer than 100 employees do not have a reporting obligation. If the report reveals a pay gap of more than 5% that cannot be justified by objective, gender-neutral criteria, companies will be required to take action in the form of a joint pay assessment carried out in cooperation with workers’ representatives. The directive introduces powerful enforcement mechanisms, unlike the current U.K. reporting regime. Workers who have experienced gender pay discrimination can receive compensation, and member states will have to put in place penalties for employers that breach the rules.

Improving I&D in the Financial Services Sector 

The reporting landscape for financial services may also face changes in the future. In September 2023, the FCA and Prudential Regulation Authority (PRA) published consultation papers (FCA CP23/20 and PRA CP18/23) that proposed numerous measures to increase I&D in the financial services sector. These include compulsory I&D target-setting, monitoring, and reporting proposals across a wide range of characteristics, including age, sex, ethnicity, disability, religion, and sexual orientation. Although the FCA’s chief executive told the Treasury Committee that those measures were not being prioritized at present, he did state that the FCA is taking time to understand the consultation responses, and the measures may be introduced in the future.

Obtaining Employee Data

It is essential that employers find effective ways to collect and interpret accurate data to enable compliance with mandatory and voluntary reporting requirements. A key opportunity for employers to obtain useful employee data arises during the recruitment and onboarding process. Employers need, however, to be aware of the legal risks around asking certain questions relating to diversity, particularly before deciding whether to hire an individual. In particular, employers are prevented by law from asking questions about a candidate’s health before making an offer of work (although a number of exceptions apply, including questions that are necessary for the purpose of monitoring diversity in the range of persons applying to that employer for work).

Alternatively, employers often circulate surveys internally to ask employees to provide diversity data voluntarily, either openly or anonymously. In practice, it is difficult for employers to ensure that employees respond to such surveys. Employees will need to understand both the personal and social benefits of completing such surveys, and will need to be confident that they will not suffer any repercussions as a result of doing so. In order to overcome a certain amount of natural employee reticence, employers need to build a culture of psychological safety (including very clear commitments to data privacy and security) that encourages employees to voluntarily engage with the data-reporting process. This ensures that the most detailed and accurate data is obtained, while minimizing the risk of associated claims (such as for discrimination).

Risks for Employers

Data Protection

As employers comply with ever-increasing mandatory diversity reporting in the U.K., as well as voluntary monitoring and reporting expected by stakeholders, they will need to process and store increasing amounts of employee data. There are inherent risks for employers holding and processing data about their employees, which must always be done in compliance with data protection legislation and guidance. The potential exposure to risk will inevitably increase as employers increase the volume and nature of this data to meet the growing obligations and expectations.

For example, in order to review pay data across all protected characteristics (as the FCA urged all chairs of remuneration committees to do in a letter dated Aug. 3, 2021), employers will need to obtain and store data covering all protected characteristics in a way that enables comparison alongside pay. In doing so, employers will be collecting data that falls within “special categories of personal data” under the U.K. General Data Protection Regulation (GDPR). Processing special category data requires both a general ground for that processing (under Article 6 of the U.K. GDPR) and a specific exemption (under Article 9(2) of the U.K. GDPR).

While “explicit consent” is an exemption for processing special category data, the Information Commissioner’s Office has indicated that it is unlikely to be possible for an employer to rely on consent as a ground for processing employee data in England due to the inevitable imbalance of power between an employer and employee. Employers will most likely, therefore, have to rely on the exemption allowing processing that is necessary for the purposes of performing or exercising obligations and rights that are imposed or conferred by law in connection with employment. 

Under the U.K. GDPR (and its European counterpart, the EU GDPR), significant fines can be imposed in the event of noncompliance. The U.K. GDPR and the Data Protection Act 2018 set a maximum fine of 17.4 million pounds or 4% of annual global turnover, whichever is greater.

Vicarious Liability

Aside from the liabilities imposed by data protection law, employers may also find themselves liable if their employees misuse the personal data of other individuals. In 2018, the scope of an employer’s vicarious liability for acts of their employees was considered in the Supreme Court of the U.K. under the claims brought against Morrisons by 9,263 current and former employees after one employee posted the personal data (including bank details, addresses, and salary information) of almost 100,000 employees online in retaliation for a minor disciplinary sanction. The individual in question had been given access to the payroll data for the entire workforce to enable him to collate and transmit payroll data needed by Morrisons’ auditors.

While the Supreme Court of the U.K. ultimately held on appeal that Morrisons was not vicariously liable for the employee’s act, the possibility of vicarious liability nonetheless remains a concern for employers, especially since the Supreme Court stopped short of ruling that vicarious liability can never arise under data protection legislation. The judgment also stated that on other sets of facts, it would be possible for employees to hold their employer vicariously liable for statutory breaches of data protection law, misuse of private information, or breach of confidence. Both the high court and the Court of Appeal had previously held that Morrisons was liable, demonstrating the finely balanced nature of the test for vicarious liability and the potential risks for employers if they do not adequately safeguard employee data by limiting who has access to that data and the purposes for which it can be used.

Discrimination

The Equality Act 2010 legally protects individuals from discrimination in the workplace. There are several ways in which the collection of, and reporting on, employee diversity data could result in discrimination claims against employers, as detailed below:

• Once employers are on notice (for example, as the result of employee responses to diversity surveys) that an employee has a particular protected characteristic, any detrimental action toward that employee carries the risk of an inference being drawn that such detrimental action is because of the protected characteristic and therefore constitutes unlawful discrimination. There is a shifting burden of proof on the employer to show that it was not because of the protected characteristic, perhaps by showing that the data was only ever provided and held anonymously. This underscores the importance of secure processing of such data and its appropriate use.
• Similarly, if an employer is on notice that an employee is experiencing physical or mental health difficulties and fails to take steps to manage such difficulties, the employer could be held liable for failing in its duty of care toward employees, or its duty under the Equality Act 2010 to make reasonable adjustments for an employee with a disability.
• Increased reporting that indicates that employees are remunerated differently or have different experiences at work based on protected characteristics such as sex, ethnicity, or disability may give rise to increased litigation or fuel existing litigation.
• As noted, much of the value of diversity monitoring and reporting arises from the ways in which employers can use the data to identify the need for action to improve diversity. However, while the Equality Act 2010 does allow positive action in certain circumstances, positive discrimination is not permitted, and employers must be careful that steps taken to improve diversity do not stray into positive discrimination.

An Employment Tribunal claim in 2021, in which two male employees successfully claimed sex discrimination when they (along with three other male employees) were dismissed after the employer reported a 44.7% gender pay gap, provides a useful reminder of the minefield that employers face when trying to address identified issues with the diversity of their employees.

As with data protection legislation, there are potentially significant consequences for employers if they are found to be in breach of discrimination legislation. Not only are damages for discrimination claims uncapped, but such claims increasingly have adverse reputational consequences.

Equal Pay

As well as protecting employees from discrimination, the Equality Act 2010 also gives employees an express right to receive equal pay and terms of employment to comparator employees for carrying out equal work, unless there is a material reason for any difference that is not related to sex.

In the same way that diversity reporting could fuel discrimination claims, pay gap reporting may fuel equal pay litigation. While a pay gap does not itself indicate that there is an equal pay issue (as a gap indicates a difference in average pay and not a difference in pay between employees carrying out equal work), it might help create context.

Cross-Jurisdictional Risks

It is essential that employers, particularly those that operate large global businesses, remain aware of international differences in reporting requirements. They will particularly have to bear in mind how jurisdictions differ in their attitudes to certain diversity disclosures, which may present problems if it is not possible to tailor employee surveys or any other methods used to collate data per country. For instance, in the Czech Republic, employers may not request information from employees that is not directly related to the performance of work, while in some jurisdictions, questions about sexuality may cause religious or moral offense or even incur criminal liability. In other jurisdictions, while there are no explicit laws regarding which questions employers may ask their employees, the cultural norms of the workplace mean that such questions would be seen as highly unusual.

Protecting Employee Diversity Data

There are a number of practical and proactive steps that employers can take to protect their employees’ data:

• Employers should appoint a data protection officer to cover all aspects of information, including U.K. Data Protection Act and Freedom of Information Act compliance.
• Employers should conduct a separate data protection impact assessment for each diversity program requiring the processing of data.
• When possible, employee data should be aggregated and anonymized.
• Access to data should be minimized and time-limited whenever possible, and security policies continually reviewed.

The organization should ensure that wider practices are put in place that encourage a culture where data is secure and individuals’ rights respected. For example, employers should provide clear notice to employees or job applicants as to when the provision of personal data is optional and explain exactly how and why they use and store diversity data.

Employers should also have a clear record of what their policies and practices are regarding data security. They should seek advice on implementing a written policy for treatment of diversity data and train relevant employees to follow the policy and to be accountable for their use of data. In particular, there should be a clear policy regarding how to escalate and report data breaches.

Employers should create and maintain an inventory of the personal data held about employees.

Conclusion—Looking Beyond the Data

Collecting and processing the data that employers need to report on diversity is not necessarily straightforward, and there are legal risks under both data protection law and employment law. To realize the potential benefits and comply with increasing expectations from stakeholders, employers also need to be able to analyze the data effectively and use that analysis to develop and keep under review appropriate policies to improve diversity. If they fail to do so, not only will they miss out on the potential benefits of diversity reporting, they will also risk damaging the reputation of the company, in the eyes of both stakeholders and the general public.

Working toward a more diverse workforce is, of course, only the first step for employers. Equally as important is the creation of an inclusive workforce, meaning one where all employees are valued, respected, accepted, and encouraged to fully participate in the organization.

If diversity is achieved without achieving inclusion, employees may not feel able to raise their views and contribute toward the business, resulting in a loss of opportunity to benefit from diversity of thought and experience. It also raises the risk that diversity policies are seen as box-ticking and tokenistic exercises, rather than the outward demonstration of the company’s values. An organization that makes empty diversity promises may inadvertently make it easier for employees to bring successful discrimination claims. Employers should, therefore, not see an improvement in their diversity data as the end of the process, and they will need to keep their policies under review to ensure that improved diversity is reinforced by a culture of inclusion.

Philippa O’Malley is an attorney with Slaughter and May in London. © 2024 Slaughter and May. All rights reserved. Reposted with permission of Lexology.