Ethnicity and disability pay gap reporting: Consultation paper published

Background

The Draft Equality (Race and Disability) Bill was announced in the King’s speech on 17 July 2024. The Government’s stated aim of the Bill is to create a more equal society and support a growing economy. The Bill intends to tackle inequality for ethnic minority and disabled people by:

• Enshrining in law the full right to equal pay for ethnic minorities and disabled people to make it easier for them to bring unequal pay claims.
• Introducing mandatory ethnicity and disability gap pay reporting for larger employers (250 or more employees). This will expose any pay gaps and enable organisations to consider why such pay gaps exist and how to tackle them.

Also announced during the King’s Speech was the high-profile Employment Rights Bill, about which we have written extensively.

Consultation paper

The consultation paper was published on 18 March 2025 and the responses to it will help the Government to develop the draft legislation. As stated in the consultation paper, currently, most ethnic minority groups earn on average less than their white British peers and disabled people have, on average, lower incomes than non-disabled people.

It is the Government’s view that gender pay gap reporting has improved transparency and provided employers with important information about how to address inequalities. The intention is to use a similar reporting framework but the Government accepts that there are “distinct considerations for ethnicity and disability, particularly in data collection and analysis”.

What does the consultation paper cover?

Geographical scope – It is proposed that there should be mandatory reporting by large private and voluntary sector employers in England, Wales and Scotland and large public bodies in England. In addition, mandatory reporting should apply to certain public authorities operating across England, Wales and Scotland in relation to non-devolved functions.

Pay gap calculations – The Government wants to minimise any additional burdens by using the same processes and systems for gender pay gap reporting. This means that employers would report on mean and median differences in average hourly pay and bonus pay, the percentage of employees receiving bonus pay for the relevant protected characteristic and the percentage of employees in four equally-sized groups, ranked from highest to lowest hourly pay.

Significantly, the Government also proposes to make it mandatory for 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 – The Government is seeking views on whether employers should have to produce action plans for ethnicity and disability pay gap reporting. Such plans can help identify why there is a pay gap and how it can be closed.

Additional reporting requirements for public bodies – The Government’s view is that this could help improve transparency and accountability and it has asked whether employers should report ethnicity pay differences by grade or salary bands and data relating to recruitment, retention and progression by ethnicity.

The Government has specifically asked whether these additional reporting requirements should extend to disability.

Dates and deadlines – The Government proposes to use the same two sets of dates as used for gender pay gap reporting. There is the “snapshot date” of 5 April each year for the private and voluntary sector and the “reporting date” within 12 months, that is 4 April the following year. For public bodies, the dates are 31 March and 30 March the following year. It is also proposed that employers report their ethnicity and disability pay gap data online, in a similar way to the gender pay gap service.

Enforcement – It is proposed that the Equality and Human Rights Commission would enforce ethnicity and disability pay gap reporting, as it currently does for gender pay gap reporting.

Ethnicity data collection and calculations – England, Northern Ireland, Scotland and Wales have their own specific requirements in relation to ethnicity data and the Government recommends that the harmonised country-specific approaches are used where possible. For England and Wales for example, five ethnic groups (with different groups within those) were used for the 2021 census while in Northern Ireland there were ten groups. In Scotland, for the 2022 census, there were six groups (with different groups within those). Asking employees to report their own ethnicity is the best way to collect data but the Government says there should be an option to opt out of answering.

Because some ethnic groups may be earning more than others, the Government’s view is that “ethnicity pay gap reporting is most powerful when it captures dynamics across different ethnic groups”. It encourages employers to show pay gap measures for as many ethnic groups as they can.

However, for data protection purposes and to protect employees’ privacy, a minimum of 10 employees in any ethnic group that is being analysed is proposed. Employers might have to add some ethnic groups together to meet this threshold and they are advised to follow the ONS guidance on ethnicity data to ensure “that groupings are as coherent and comparable as possible between employers, and for an individual employer over time”. A “binary classification” of two groups is proposed if an employer has smaller numbers of employees in different ethnic groups, for example, comparing white British employees with ethnic minority employees.

Disability data collection and calculations – The Government proposes taking a “binary approach” measuring the disability pay gap by comparing the pay of disabled employees with non-disabled employees. This is preferred to measuring the difference in pay between employees with different impairment types and non-disabled employees because of the risk of individuals becoming identifiable and the complexity involved where someone has multiple impairments.

The Equality Act 2010 definition of disability is proposed. Note that there will be no legal obligation on employees to identify or disclose their disability to their employers when disability pay gap reporting is introduced. As with ethnicity, for data protection purposes and to protect employees’ privacy, a minimum of 10 employees in each group being compared is proposed.

Comment

Many large employers are already analysing ethnicity pay gaps on a voluntary basis. It is accepted that this is more complex than gender pay gap reporting because of the large number of ethnicities in the workforce and the lack of information about employee ethnicity in many organisations. In April 2023, the previous Government published comprehensive guidance for employers on how to voluntarily measure, report and address any ethnicity pay difference within the workforce. See our previous article for more details – Ethnicity pay gap reporting guidance published.

The consultation paper is start of the process and the Government intends that there should be further engagement and a call for evidence in relation to other parts of the Bill, including in relation to equal pay.

Useful links

• Mandatory ethnicity and disability pay gap reporting
• Harmonised categories for ethnicity
• ONS ethnicity data