While the detail will follow in secondary legislation, the direction of travel is now clear: employers with 250+ employees should expect a reporting regime closely aligned to gender pay gap reporting, but with additional complexity around data collection, classification and interpretation.

Ethnicity and disability pay gap reporting measures differences in average pay between ethnic groups and between disabled and non-disabled employees, and is distinct from equal pay. The government committed in its manifesto to make both mandatory for employers to report.

This time last year, we wrote about the consultation, explaining the government’s plans in detail. Against the backdrop of growing anti-DEI sentiment in the US and mounting political pressure in the UK, it was far from clear whether and when these ambitious plans would be taken forward. The government has now resolved those doubts – it is pressing on with mandatory reporting for large employers.

In this article, we explain what’s been confirmed, what remains uncertain, and what employers should be doing now.

What did the consultation cover?

The consultation sought views on various aspects of the potential reporting framework, including the calculations employers should undertake and publish, how to define and compare different groups, whether to align with existing requirements for mandatory gender pay gap reporting, and whether to make action plans mandatory.

The government intends to take forward all but one of the proposals set out in the consultation. The consultation response also includes draft clauses showing how the primary legislation may work in practice (with further information in the supporting regulations to be published in due course). In this article, we explain the proposals and the potential impact on employers.

Mandatory pay gap reporting still on the cards

The headline outcome is that the government remains committed to introducing ethnicity and disability pay gap reporting for large employers (those with 250 or more employees). 87% of respondents to the consultation agreed that this policy should be implemented.

Operating in a similar way to gender pay gap reporting, 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.

Organisations below the threshold will be encouraged to report voluntarily.

This confirms that ethnicity and disability pay gap reporting will no longer be a “nice to have” and is a forthcoming compliance requirement.

How will the calculation operate?

The government has confirmed that reporting will closely mirror gender pay gap reporting, which will be familiar to many employers.  

This follows feedback from the consultation. A clear majority of respondents agreed that employers should be required to report the same six calculations as gender pay gap reporting for ethnicity and disability:

• 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.

It will be helpful for employers to work towards broadly the same timings and processes as for gender pay gap reporting, and this will also enable consistent comparison of results.

The government has indicated that it will provide detailed guidance on how these calculations should be made and that it will also encourage employers to go further by considering intersectional disparities where possible.

In practice, applying these familiar calculations to ethnicity and disability data is where complexity emerges. Unlike gender, ethnicity and disability data is often incomplete, inconsistently categorised, and based on voluntary disclosure, which can materially affect the reliability of the outputs. The methodology may be familiar, but the data it relies on is fundamentally different, and that interpretative challenge is where most of the difficulty lies.

Reporting workforce breakdown by ethnicity and disability

In contrast to the gender pay gap report regime, the government will proceed with the plan 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 ethnicity and/or disability.

The underlying idea is that this will provide context to pay gap figures and mitigate against concerns that some employers would stop seeking to hire ethnic minority or disabled people to avoid higher pay gap figures. This breakdown will also enable employers to explain the regional context. Given representation of ethnicities is not evenly distributed across the UK, this will be important.

Further context will come from reporting the percentage of employees who did not disclose their ethnicity or disability status. These non-declaration rates can provide useful insight into organisational culture and how comfortable employees feel sharing personal data.

Based on our experience advising employers on voluntary ethnicity pay gap reporting, low disclosure rates are often the single biggest barrier to producing meaningful analysis. A high non-declaration rate may also indicate that the reported results do not paint the true picture. In some cases, simply improving data completeness will have a greater impact on pay gaps.

A high non-declaration rate may mean the reported results do not fully reflect reality. Indeed, non-disclosure rates may become a key metric in their own right, potentially even more revealing than the pay gap figures themselves.

Extra reporting for public sector has been abandoned

Plans for additional reporting requirements to be imposed on public bodies (such as reporting on differences by pay and salary band, and data relating to recruitment, retention and progression) will not be implemented.

Action plans to be mandatory

The government has confirmed that it will require large employers to publish action plans to tackle any ethnicity and disability pay gaps. This will be aligned with requirements for employers to produce action plans covering steps to reduce the gender pay gap and support employees going through menopause, streamlining the process so that employers will not need to produce separate action plans.

How to classify ethnicity

The consultation asked for views on how employers should collect ethnicity data for pay gap calculations. The government remains committed to the approach set out in the consultation:

• 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).

As highlighted in the consultation, there are slightly different questions in the ethnicity harmonised standard across England, Wales and Scotland. The consultation response doesn’t unveil any particular solution to this issue, stating only that the government “will provide guidance for employers on how they can recognise these different approaches when collecting ethnicity data from their employees across these nations”.

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.

The consultation had proposed using White British as being the comparison group, with all other ethnic groups combined as the default binary comparison. This is problematic since it would push all “White Other” employees (which might include French, German, Spanish or Italian employees, not typically seen as suffering barriers in the labour market). This formulation of the ethnicity pay gap would therefore be more of a nationality pay gap.

Following stakeholder feedback, the government has changed its approach. It will now require a binary comparison of White (including White Other) compared to all other ethnic groups combined, in line with ONS guidance.   This creates a fundamental limitation in the reporting framework: while binary comparisons support consistency, they risk masking significant differences between ethnic groups and may produce results that are difficult to interpret in practice.

For this reason, if numbers meet the minimum threshold, employers must also report comparisons between the five broad ONS ethnic groups (White, Asian or Asian British, Black/Black British/Caribbean or African, Mixed or multiple ethnic groups, and Other ethnic groups).

In terms of the minimum threshold, this is likely to be 10 employees, though the government is still working with the Information Commissioner's Office to determine the most appropriate threshold to protect confidentiality while allowing meaningful comparisons. This threshold will apply across all pay gap calculations, including each salary quarter (which, in practice, means that any employer with less than 40 ethnic minority employees would be unable to report these statistics).

As an absolute minimum, all employers must report a binary gap comparing White (including White Other) with all other ethnic groups combined. The only exception is where an employer does not meet the minimum threshold for either the White group or all other ethnic groups combined. More granular comparisons than the five broad ethnic groups will not be mandated, but employers with significant numbers in specific groups will be encouraged to conduct more detailed voluntary analysis.

Disability pay gap reporting: the definition of disability

As previously proposed, the Equality Act 2010 definition of “disability” will be used as the basis of identifying disabled employees. This means that 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.

Asking employees to self-identify if they are disabled has unique challenges. Some employees who would meet the definition may not 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.

As a result, disability pay gap reporting is likely to be heavily influenced by how employers frame the question and how comfortable employees feel disclosing their status. In our experience, how the question is framed to employees can have a material impact on disclosure rates, and therefore on the reported pay gap itself. Employers are likely to need clear guidance on how to frame this question in practice and, ideally, a model question that can be used consistently.

Also, a practical concern for employers is whether collecting this data puts them "on notice" of an employee's disability, even where the underlying condition has no impact on the employee's ability to do their job. Employers are likely to want to think about collecting data in a way that signposts how employees can discuss any adjustments required, to reduce the risks of “missed” reasonable adjustments.

Disability pay gap reporting will be based on a binary comparison

Despite the enormous spectrum of conditions that will fall within the definition of a disability, the government has confirmed that the comparison will be binary. This means that employers will not have to collect and publish data about different impairment types. Instead, all disabled employees will be grouped together and employers will be required to publish the “disabled v non-disabled” gap data.

In terms of what the reporting threshold will be, a minimum of 10 people for each category had been proposed. The government recognises concerns around confidentiality and is yet to reach a decision on where this threshold should sit.

When will ethnicity and disability pay gap reporting be introduced?

The government response does not commit to a specific implementation timeline. Several details remain outstanding (such as the minimum employee threshold for reporting categories and navigating differences between Scotland, Wales and England) and the draft Bill clauses published with the consultation response are fairly high-level. These provisions primarily confer regulation-making powers, meaning that the detail will sit in secondary legislation, which will be critical. These provisions were due to be introduced as part of a wider Equality (Race and Disability) Bill, but despite a call for evidence nearly a year ago, there has been no news on the other proposals, which include the extension of equal pay claims to race and disability.

In other words, while the exact timing is unclear, employers should treat this as a “when, not if” reform. Employers that wait for final legislation before acting are likely to find themselves on the back foot, particularly given the lead time required to collect and validate data.

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, in our experience most still don’t – and the vast majority don’t analyse ethnicity pay gaps, while even fewer are looking at disability pay gaps. For many employers, this will represent a step change in complexity compared to gender pay gap reporting. There is also a risk that poorly understood or poorly explained data could lead to misleading conclusions, both internally and externally.

Although key details must be resolved, and we await detailed regulations, these are some steps employers can take now:

• Employers currently using different ethnicity classification categories, or collecting disability data in a different way, will need to collect fresh data and should check whether their HR systems can accommodate these categories. International employers are likely to face challenges to maintain a global approach, particularly given the conflicting regulatory signals from the UK and US.
• Question marks still remain over how meaningful the reported data will be. The requirement to use binary comparisons - both for ethnicity (White versus all other groups combined) and disability (disabled versus non-disabled) - masks the very real differences between different ethnic groups and different impairment types. Employers will therefore need to decide whether to invest additional time in explaining the data and potentially sharing other more meaningful measures of diversity and inclusion.
• The government is still working with the Information Commissioner's Office to determine the most appropriate threshold to protect confidentiality while allowing meaningful comparisons. If the government proceeds with 10, understanding and explaining your data will become more important as such a small dataset will be prone to significant fluctuations.
• Incomplete data on ethnicity and disability will be the biggest immediate challenge and is likely to skew the numbers, based on our experience working with employers in this area. The confirmed requirement for employers to publish the percentage of their workforce who did not share their ethnicity/disability status means this percentage could become a common point of comparison between employers (regardless of size or geography).
• Given the challenges relating to the definition of disability highlighted above, employers will need further guidance on how exactly to frame this question about disability. They should consider what explanation they give to employees and whether 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.
• The confirmed requirement to publish action plans will 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 will need to make strategic decisions about whether they could or should be doing more to support minoritised and disabled employees. This continues to be a contentious issue for multinationals impacted by President Trump’s anti-DEI measures.

From our work with employers already analysing ethnicity pay gaps, those that see the most value treat this as a data and insight exercise, rather than a pure compliance task. The forthcoming legislation will provide the structure for employers to look at ethnicity and disability issues in the workplace, but it’s the action that’s taken in response that’s important.

The consultation outcome can be found here.

We can support you with ethnicity and disability pay gap reporting. For more information about our services, see our pay gap reporting service page.