In October 2024, the government released the draft Equality (Race and Disability) Bill, outlining its plan to implement mandatory ethnicity and disability pay gap reporting for larger employers. On 18 March 2025, the government published a consultation document to gather feedback on the proposed mechanisms and to guide the subsequent development and drafting of the legislation.
Since 2017, large employers in the United Kingdom have been required to disclose their gender pay gap data. This obligation has enhanced transparency for both employers and employees and has provided vital information to employers to guide their efforts in addressing inequalities. The government plans to implement a similar reporting system for ethnicity and disability, mirroring the existing framework for gender pay gap reporting. Nonetheless, the government acknowledges that there are unique considerations for ethnicity and disability, particularly regarding data collection and analysis.
Who will the requirements apply to?
The government has proposed that the obligation will apply to large employers, specifically those with 250 or more employees, who are already required to report their gender pay gap. Additionally, this obligation will encompass the same geographical scope as the gender pay gap reporting: large private and voluntary sector employers, as well as large public sector bodies in Great Britain.
Pay gap calculations
The government wants to minimise the burdens on businesses by using the same processes that are already in place for gender pay gap reporting. As a result, 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 4 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 for the relevant protected characteristic.
The government is seeking views on whether it is appropriate to use the same measures for reporting for disability and ethnicity. The proposal also includes a requirement for employers to report on the workforce’s overall composition by ethnicity and disability, including the percentage of employees who chose not to disclose their personal data in these categories, to assist in providing context for the figures.
Action plans
The government proposes that employers should produce action plans for ethnicity and disability pay gap reporting. The purpose of the action plan is to help employers identify why they have a pay gap and how they intend to close it. The action plan will also help employees as it will allow them to understand the actions that their employer is taking and to hold their employer to account.
Additional reporting for public bodies
The government is proposing to require public bodies to provide additional information in relation to ethnicity. This may include pay differences by grade or salary band and data relating to recruitment, retention and progression.
Ethnicity data collection and calculations
When looking at collecting ethnicity data the government proposes that employees will be asked to report their own ethnicity and that this should include an option such as ‘prefer not to say’.
One of the key considerations for ethnicity reporting is determining the classification breakdown to use. The government’s proposal suggests that employers use the detailed ethnicity classifications provided in the Government Statistical Service (GSS) ethnicity harmonised standard which includes 18 ethnic groups. Implementing this would create a harmonised standard enhancing the usefulness of the reporting.
One challenge in ethnicity reporting is that employees in less represented minority groups, could be identifiable. In order to protect employee privacy and produce more robust data, the government proposes a minimum threshold of 10 employees in any ethnic group being analysed. This may require aggregating certain groups to meet the minimum threshold. The proposal suggests adhering to the guidance on ethnicity data from the Office for National Statistics to ensure that groupings are coherent and comparable both between different employers and for an individual employer to compare over time. For some employers, this might result in a binary classification of White British employees and ethnic minority employees. While this may be adequate, employers are encouraged to periodically review this classification and provide more detailed reporting on ethnic groups where possible.
Disability data collection and calcuations
Previously two approaches have been identified in how to calculate the disability pay gap:
- Measure the difference in pay between disabled employees and non-disabled employees – the ‘binary approach’.
- Measure the difference in pay between employees with different impairment types and non-disabled employees.
The government has identified significant risks in using the impairment approach for pay gap or workforce reporting, such as the risk of identifying individual employees and difficulties in calculating when an employee has multiple impairments. The impairment approach does however allow for a more detailed understanding of which groups of disabled people are most affected by pay gap issues. Conversely, the binary approach reduces the risk of identifying individuals and is easier for employers to implement. As a result, the government proposes adopting the binary approach, measuring the disability pay gap by comparing the pay of disabled employees with non-disabled employees. The definition of disability for these purposes would be as set out in the Equality Act 2010. Employees will continue to report disability themselves, and will not be required by law to identify or disclose disability to their employers as a result of introducing disability pay gap reporting.
Implications for Employers
Although these proposals are currently only in the consultation process there are initial points that employers will need to consider.
- Some employers are already reporting voluntarily. However, they will need to review their classifications to ensure compliance with the proposed categories defined by ethnicity if these are to be followed.
- What if employees choose not to identify? Employers will need to consider how disclosure rates can be improved and how they will explain the non identification in any reporting.
- If employees identify as disabled how will this be dealt with by employers? The requirement to carry out reasonable adjustments under the Equality Act 2010 only applies if the employer knows, or should have known of the employee’s disability. If the employee identifies as disabled for this purpose will this mean that the employer has knowledge and therefore has a responsibility to undertake reasonable adjustments?
Next steps
The consultation closes on 10 June 2025 and we will be reviewing any response and further proposals by the government.