Mandatory ethnicity and disability pay gap reporting has moved one step closer to becoming law, with the government setting out the basics of how the new pay gap reporting regimes will work and opening a consultation to gather views.
Requiring large employers to publish their ethnicity and disability pay gaps has been on the cards for several years. The Labour party committed to legislate in their 2024 election manifesto and a draft Equality (Race and Disability) Bill introducing the requirement is expected this year. Ahead of its publication, the government has opened a consultation with a high-level summary of how ethnicity and disability pay gap reporting would work, and a call for views.
By opening this consultation now, the Labour government is signalling that it has not abandoned this initiative despite the anti-DEI stance being pursued by President Trump in the US, although how quickly and energetically the government will now progress the legislation remains to be seen. In this article, we explain the proposals and the potential impact on employers.
Extending mandatory pay gap reporting to ethnicity and disability
Large employers across Great Britain have been required to report their gender pay gap data since 2017. The government plans to use a similar reporting framework for ethnicity and disability, meaning that all employers with 250 or more employees would need to report their workforce ethnicity and disability pay gaps. Private sector employers would be required to use data from a 'snapshot date' of 5 April each year and report their gaps within 12 months – by 4 April the following year. Employers would report their data online, in a similar way to the gender pay gap service.
How to calculate ethnicity and disability pay gaps
The government plans to require employers to report the same set of pay gap measures for ethnicity and disability as apply to gender pay gap reporting, which would mean reporting on:
- mean differences in average hourly pay
- median differences in average hourly pay
- pay quarters – the percentage of employees in four equally-sized groups, ranked from highest to lowest hourly pay
- mean differences in bonus pay
- median differences in bonus pay
- the percentage of employees receiving bonus pay.
Extra requirement to report workforce breakdown by ethnicity and disability
As an additional requirement (which does not apply to gender pay gap reporting), the government plans to require employers to report on:
- the overall breakdown of their workforce by ethnicity and disability
- the percentage of employees who did not disclose their personal data on their ethnicity and disability.
Action plans for closing the gap to be mandatory
The government is also seeking views on whether employers should have to produce action plans for closing their ethnicity and disability pay gaps. Gender pay gap action plans are already set to become mandatory under separate proposals in the Employment Rights Bill
How to classify ethnicity
The government's plans for classifying ethnicity for pay gap reporting purposes are – as widely predicted – that:
- employees will self-identify (so choose the ethnicity that they think best describes them)
- employees should choose from the 18 categories used in the Government Statistical Service (GSS) ethnicity harmonised standard (broadly as used for the 2021 Census)
- employees will not be legally required to disclose their ethnicity – there must be a "prefer not to say" option – (making 19 suggested options in total).
Ethnicity pay gap reporting – employers to compare any group with at least 10 employees and the absolute minimum will be a binary comparison
The current guidance to employers reporting ethnicity pay gaps voluntarily says there should be a minimum of 5 - 20 employees in any ethnic category before the average pay for that category can sensibly be analysed, and a minimum of 50 employees in any category before pay gaps relating to that category should be published externally. This is both to ensure statistical robustness and guard against identifying individual employees. The guidance also strongly discourages reporting only a binary ("White v other") gap on the basis that this masks the obvious differences between ethnic groups.
In a total rejection of that guidance, the government now proposes as follows:
- The minimum threshold should be 10 employees
- If there are fewer than 10 employees in any one of the 18 categories, employers should add ethnic groups together, following the guidance on ethnicity data from the Office for National Statistics about how to collapse groups upwards. The minimum threshold of 10 should apply for each aggregated ethnic group being analysed.
- Ass an absolute legal minimum, all employers must report a binary gap – either "White British v other" or "White v other" or the comparison between the largest ethnic group in the organisation and all other groups combined
Disability pay gap reporting will be based on the Equality Act definition of disability
The government proposes using the Equality Act 2010 definition of 'disability' as the basis of identifying disabled employees.
Under the Equality Act 2010, a person is disabled if they have a physical or a mental condition that has a substantial and long-term impact on their ability to do normal day to day activities, with certain medical conditions deemed automatically to be disabilities.
Employees will self-report and will not be required to disclose their disability status. As with ethnicity pay gap reporting, there must be a "prefer not to say option".
Disability pay gap reporting will be based on a binary comparison
The government has decided not to require employers to collect and publish data about different impairment types. Instead, all disabled employees will be grouped together regardless of the nature of their disability and employers will be required to publish the "disabled v non-disabled" gap data.
In line with ethnicity pay gap reporting, there should be a minimum of 10 employees in each group being compared in terms of pay. Presumably, employers with fewer than 10 disabled employees will have to file a report explaining that they cannot publish a disability pay gap.
When will ethnicity and disability pay gap reporting be introduced?
The consultation gives no clues about the timing, although the government has committed to publishing the draft Equality (Race & Disability) Bill this parliamentary session. Depending on the timing of the next King's Speech, this is likely to be summer or autumn this year. The legislation will likely only provide the basic framework and the details would need to be fleshed out in accompanying regulations. Realistically, the absolute earliest that ethnicity and disability pay gap reporting could be introduced would be 2026 with the first reports due in 2027.
Practical impact on employers and next steps
- The introduction of mandatory ethnicity and disability pay gap
reporting will be a major change for UK employers. While many
already collect and analyse ethnicity pay gap data (and some
publish this externally), in our experience most still don't
– and the vast majority don't analyse disability pay
gaps.
- The plan to classify ethnicity by using the 18 categories is in
line with what was generally expected. If you currently collect
ethnicity data by reference to different categories then you are
likely to need to collect fresh data. It is not entirely clear if
the government will mandate the 18 category approach or just
recommend it as best practice. Employers will need to check if
their HR information system uses or can be customised to use these
categories and, if not, start conversations with their HR software
vendor about their plans for updating their software. Assuming
these proposals go ahead, employers operating internationally may
struggle to maintain or adopt a global approach to ethnicity
classification.
- The decision to make ethnicity and disability pay gap reporting
mandatory for any company with at least 250 employees is in line
with what we've been expecting, since Labour committed to the
250 threshold in their "Plan to Make Work Pay" (referred
to in their election manifesto) and in various subsequent
publications on this topic. The consultation document does not
specifically ask for views on the 250 threshold, although many
companies will no doubt be questioning whether this is workable and
whether the threshold should be raised (e.g. to employers with
1,000 or more employees). It's not clear that the government is
open to changing its mind on this issue.
- The plan to require a binary comparison as a minimum was
probably inevitable given the choice to make pay gap reporting
compulsory for employers with just 250 employees. A more nuanced
approach would be difficult to mandate for this size of company.
Lumping all ethnicities and types of disability together, however,
masks the very real differences between different ethnic groups and
different impairments. The risk is that the binary comparison data
is meaningless and that employers would need to decide whether to
invest additional time in explaining the data and potentially
sharing other more meaningful measures of diversity and
inclusion.
- How the ethnicity pay gap comparisons will work in practice
needs further clarification. For one thing, it's unclear when
employers would use "white British" as the comparison
group and when they would use "white". The consultation
says that the government's preference is for "white
British v other" to be the standard minimum comparison, unless
employers do not have the data or have fewer than 10 white British
employees. However, "white v other" might be considered a
more sensible binary comparison. If the comparison is "white
British v other" then white North American and European
employees would fall in "other" which is highly likely to
skew the data in many companies. Details will need to be fleshed
out and clarified after the consultation but employers could start
running dummy calculations using different approaches.
- The suggestion of a minimum threshold size of 10 employees in
any ethnic category is controversial. The average pay of such a
small dataset of employees is unlikely to be especially informative
and will be prone to significant fluctuations each year as
employees at different levels join or leave. This may also render
individual identification more likely. This is not a problem which
typically applies to gender pay gap reporting. If the government
stick with this suggestion, understanding and explaining your data
will become more important.
- Geography will matter. Ethnic minorities are not evenly
distributed across the UK. Employers should be benchmarking against
their local populations and would want to comment on this when
explaining their data.
- Incomplete data on ethnicity and disability will be the biggest
immediate challenge and has the potential to skew the numbers.
Given that all employers would need to publish the percentage of
their workforce who did not share their ethnicity/disability
status, this percentage could become a common point of comparison
between employers (regardless of size or geography). We explored
how to drive up self-ID disclosure rates in our recent podcast.
- Asking employees to self-identify if they are disabled has
unique challenges. Some employees who would meet the definition of
disabled for Equality Act purposes will not necessarily regard
themselves as disabled. Others may receive a new diagnosis meaning
that they would not be disabled in one year, but may be in the
next. Some may be reluctant to share details of their health
conditions. The number of employees being diagnosed or
self-identifying with neurodivergent conditions is rising
significantly and many would be classed as disabled within the
Equality Act definition, although this is not inevitable. The
general intention seems to be that the employee should decide for
themselves if they meet the threshold test and if they want to
disclose this. Employers will need further guidance on how exactly
to frame the question about disability and would need to consider
what explanation they give to employees and whether their culture
and environment makes employees feel safe enough to share their
health conditions. The percentage of employees not willing to
disclose their disability status could give some useful early
insight.
- Employers may also be concerned about the potential triggering
of legal liabilities and responsibilities if employees disclose
that they consider themselves to be disabled when they have not
previously done so. Liability for certain disability discrimination
claims (e.g. failure to make reasonable adjustments) arises only if
the employer knew or should have known about the employee's
disability, and any declaration identifying an employee as
potentially having a disability or long term health condition may
be used as evidence in a future claim that the employer had
sufficient knowledge of the disability, even if the details are
confidential and shared with a restricted group of people.
- The proposed requirement to publish action plans would also be
a significant project for employers. When gender pay gap reporting
was introduced, we saw employers investing in DEI initiatives to
support the recruitment, retention and promotion of women.
Employers would need to consider whether they could or should be
doing more to support minoritised and disabled employees. This is a
particularly contentious issue for multinationals impacted by
President Trump's anti-DEI measures, although by the time
employers have to publish action plans the landscape will hopefully
be more settled.
- While many details are yet to be fleshed out, the consultation signals that the government is – at least for the moment - not backing down or rowing back from its commitment to legislate. The direction of travel, therefore, remains towards legislation, even if the details and timescales are unknown. The immediate next steps for employers are to consider current levels of disclosure and how this could be improved in readiness and to respond to the consultation (which closes on 10 June 2025). We'll be responding so please get in touch if you have views you'd like to feed in.
The full consultation document can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
