Advancing equality: consultation on ethnicity and disability pay gap reporting

The government is currently seeking views on how to introduce mandatory ethnicity and disability pay gap reporting for employers with 250 or more employees.

What are the existing requirements on pay gap reporting?

At the moment ethnicity and disability pay gap reporting is voluntary (see for example the guidance here), while it has been compulsory for private and voluntary sector employers with 250 or more employees to publish a gender pay gap report since 2017. Separate gender pay gap reporting obligations apply in the public sector.

How to calculate ethnicity and disability pay gaps

A consultation is currently running, seeking views on mandatory ethnicity and disability pay gap reporting.

The government is aiming to minimise any additional burdens on businesses by using the processes and systems that are already in place for gender pay gap reporting. The same framework will apply in relation to geographical scope, snapshot dates and reporting deadlines (snapshot date of 5 April for private sector employers, with an obligation to report on that data by 4 April the following year), reporting online and enforcement. It also means that employers would be required to report 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; and
the percentage of employees receiving bonus pay for the relevant protected characteristic.

Additionally, the government is:

proposing to make it mandatory for employers to report on the breakdown of their workforce by ethnicity and disability, and the percentage of employees who did not disclose personal data on their ethnicity and disability; and
considering whether public bodies with 250 or more employees should also report ethnicity pay differences by grade or salary bands, and data relating to recruitment, retention and progression by ethnicity.

Ethnicity data collection and calculations

The government's plans for classifying ethnicity are as follows:

Employees will self-identify, in other words be asked to report their own ethnicity with an option to opt-out of answering.
Employees will choose one of the ethnicity classifications in the Government Statistical Service (GSS) ethnicity harmonised standard used for the 2021 Census.

To help protect the privacy of employees, the consultation proposes that there should be a minimum of 10 employees in any ethnic group being analysed. To meet this threshold, employers might have to add some ethnic groups together, following the Office for National Statistics' guidance on ethnicity data.

The consultation proposes that, as a minimum, a binary comparison should be used. This would be either “White British v other”, “White v other” or the comparison between the largest ethnic group in the organisation and all other groups combined.

Disability data collection and calculations

To identify disabled employees, the government proposes using the Equality Act 2010 definition of 'disability'. Therefore, an employee will be 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. Employees would not be obliged to disclose or identify their disabilities.

The government has decided not to require employers to collect and publish data about different impairment types. Instead a binary approach will be required, measuring the difference in pay between disabled employees and non-disabled employees.

As with ethnicity data collection, the government recommends a minimum of 10 employees in each group being compared to protect privacy. This appears to mean that if an employer has fewer than 10 employees who self-identify as disabled, they will be unable to publish a pay gap report (but may still have to lodge a report explaining this).

Action plans

The government is also consulting on whether employers should be required to create action plans for ethnicity and disability pay reporting (which are also to become mandatory for gender pay gap reporting under the Employment Rights Bill). These plans would explain reasons for any pay gaps and outline strategies to address them.

Potential issues with data collection

Collecting data on ethnicity and disability status in this way throws up some potential issues, for example:

Minimum threshold of 10 employees: the average pay of this size of group is likely to fluctuate each year, with employees joining and leaving the business. As a consequence, the information may not always be representative.
Self-identification: some employees may opt not to disclose their ethnicity or disability status. As a result, employers could encounter difficulties in producing an accurate representation of pay equality within their organisation.
Disability discrimination: there may be a concern that an employee's disclosure of a disability in the context of disability pay reporting could mean that the employer is classed as having knowledge of that disability for the purposes of claims under the Equality Act 2010.
Binary classification: the government's proposal to compare White British employees with ethnic minority employees where they have smaller numbers of employees in different ethnic groups could present issues. For example, this comparison risks white Northern American and European employees being categorised as "other" which is likely to affect the accuracy of the data.

Looking forward

The consultation will close on 10 June 2025 and then the government will decide on the provisions of the draft Equality (Race & Disability) Bill. The introduction of mandatory ethnicity and disability pay gap reporting will significantly impact large UK employers. It would be prudent to proactively review data collection processes now in order to be prepared for the new requirements coming into effect (likely in 2026 with the first reports due in 2027).

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