Out-Law / Your Daily Need-To-Know

Out-Law Analysis 3 min. read

Employee data: an asset with rising social and financial value


Employee data is being collected in increasing volume and used by many employers to inform business decision making, but some employers are failing to see the value of the data they hold and the opportunity to use it to attract external investment and improve internal processes.

Employers should be thinking about ’people analytics’ within the context of their overall business strategy.

Why is employee data collection increasing?

A lot of employee data is collected simply because some legislation mandates its disclosure to the market:

  • gender pay gap regulations;
  • annual financial reporting obligations – corporate law requires disclosure in financial statements of a swath of employment data such as executive pay to workforce pay ratios;
  • listing rules require UK listed companies to set out whether they have met board diversity targets in their annual reports;
  • greater mandatory disclosures are likely to follow – the EU’s Corporate Sustainability Reporting Directive, for example, will have an influential impact on employment disclosures.

However, data collection isn’t just about legal compliance. Employers need to think about employee data as an asset from an external and internal perspective. When data is thought about in this way, as a valuable asset, it is easier to understand why voluntary employment data collection is increasing.

Employee data – external perspective

Employee data that is consumable by the market has value – perform well against your competitors and investors will be attracted to you.

Benchmarking employment data is done with increasing ease through voluntary initiatives, such as the Workforce Disclosure Initiative, and the growth of ESG rating agencies means investors can increasingly easy draw comparisons. Even if employers are not a ‘top performer’, investors want transparency around workforce matters and narrative to explain shortcomings. For this reason, some employers go further than mandatory disclosure to the market and voluntarily disclose significant employment data in increasingly common ESG reports. These reports may include data on a range of topics including diversity and inclusion (D&I), wellbeing, and training.

Corden Helen

Helen Corden

Partner

Data collection isn’t just about legal compliance. Employers need to think about employee data as an asset from an external and internal perspective

Employers often include themselves in market benchmarking exercises such as the FTSE Women Leaders Review that monitors board and leadership gender diversity in the UK’s largest companies.

Data collection is increasingly wise to substantiate public statements made around progressive employment practices. It is predicted by some that avoiding accusations of ‘social washing’ will join ‘greenwashing’ as a risk area to be managed and regulated. There could be a significant reputational fall-out for businesses that make misleading statements.  

Employee data – internal perspective

Employee data gives insight into:

  • efficiencies – for example, whether recruitment costs, training costs and turnover is too high, and whether current shift patterns or team configurations are optimising productivity. If an employer wants to implement an AI application with an HR function, the employer needs to be able to feed accurate, unbiased data into the AI’s operating system;
  • impact measurement – for example, whether initiatives, such as D&I, wellbeing, training strategies, are having an impact, and whether benefits and resources are being fully utilised;
  • risk assessments – for example, data might help employers predict who is likely to leave the business, raise red flag indicators of misconduct, or help identify training gaps. During the Covid-19 pandemic, data on vaccination status was relevant to some employers’ risk.

Impact measurement and risk assessment are particularly relevant to ESG strategies as these feed into a sustainable business strategy.

Having employee data as evidence to back-up internal decision-making is also, simply, good governance for senior management.

Collect employee data purposefully

The 2023 CIPD report on improving people data (23-page / 534KB PDF) highlighted that common themes across employers are that there are gaps in data collected and that a lot of data collection is being done without a clear aim.

Employers need to remember that good data collection is not a fishing expedition. If current data collection could be more comprehensive, there should be a strategic reason for any additional collection exercise.

Support data collection with meaningful insights

The need to contextualise and explain the information and how it relates to business priorities was also identified by the CIPD. Employment data is only useful if it is supported by narrative, explaining what it shows, how it is relevant to business objectives, and what actions should follow.  

Protect employee data

Like any other asset, data needs to be protected and it must be collected and processed in accordance with legal requirements and best practice, in particular:

  • data protection – in the UK, the Information Commissioner’s Office’s (ICO’s) work to update the employment practices code is continuing as it issues topic-specific guidance for consultation. Draft guidance on monitoring and health have already been published;
  • the UK government will finalise its proposed standards to ensure responsible and accurate reporting of ethnicity data;
  • disability workforce reporting will attract renewed attention as the government responds to its 2022 consultation;
  • the Financial Reporting Council plans to develop guidance and best practice on how ESG data is communicated to the market;
  • there are also a number of initiatives that give best practice advice around employee data collection. For example, the Social Mobility Commission support data collection around socio-economic status.

Actions for employers

Employment data collection and exploitation needs to be set in a business-led strategy. Employers should identify what employment data the business needs or wants for legal compliance or ESG initiatives and assess how it can be processed lawfully.

Some data collection software may go further than extraction of data and offer initial insights. However, these need to be expanded upon by HR personnel and insights should be presented to the board concisely with clear business relevance.  

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