Government launches consultation on mandatory ethnicity and disability pay gap reporting for employers

The Government has launched a consultation on mandatory ethnicity and disability pay gap reporting seeking views on the measures it proposes to include in the upcoming Equality (Race and Disability) Bill. The proposals are similar to the gender pay gap reporting regime, requiring employers (with 250 or more employees) to report differences in mean and median hourly pay and bonus and quartiles information for employees in the respective groups.

The consultation closes on 10 June 2025. No date has been set for publication of the draft legislation or when that will come into effect but any changes are unlikely to be imminent. Employers who are concerned with the challenges of ethnicity and disability pay gap reporting, such as the reliance by employers on employees self-reporting their diversity data and deciding classification structures which are meaningful but do not compromise privacy by producing low sample sizes, should consider responding to the consultation.

Those looking for other practical steps to prepare should consider using this time to start auditing and reviewing their approach to the collection and analysis of diversity data in order to identify any gaps they could start to address before the implementation of the mandatory ethnicity and disability pay gap reporting regimes. Some employers may be starting this exercise from scratch, while others may need to review and change the way in which they currently classify ethnicity and disability data in order to align with the proposed regimes. Disclosure rates are likely to warrant further attention. Any diversity data related project will trigger data protection obligations which should be factored into an employer’s project plan from the outset.

In this Law-Now we discuss the consultation proposals and outline some further recommended next steps for employers.

Consultation proposals

‘Large employers’ (that is, those with 250 or more employees) will be required to report against the six pay gap measures listed below for both ethnicity and disability, mirroring the existing gender pay gap reporting framework. The measures will apply to private, voluntary and public sector employers, although the different reporting dates which apply to gender pay gap reporting will be maintained.

Private and voluntary sectors will have a snapshot date of 5 April each year, with a reporting deadline of 4 April the following year. The snapshot date for public bodies will be 31 March each year, with a reporting deadline of 30 March the following year.

Reporting measures

The consultation proposes using the same set of pay gap measures for ethnicity and disability, which would mean employers reporting on: 

1. mean differences in average hourly pay;
2. median differences in average hourly pay;
3. pay quartiles, the percentage of employees in four equally-sized groups, ranked from highest to lowest hourly pay;
4. mean differences in bonus pay;
5. median differences in bonus pay; and
6. the percentage of employees receiving bonus pay for the relevant demographic characteristic.

To provide context to the pay gap figures, and to identify if there are low self-declaration rates, the consultation seeks views on whether employers should also report against:

• the overall breakdown of their workforce by ethnicity and disability; and 
• the percentage of employees who did not disclose their personal data on ethnicity and disability.

The consultation asks whether large public bodies should have additional reporting requirements, relating to ethnicity pay differences by grade or salary bands, and data relating to recruitment, retention, and progression by ethnicity. The consultation also seeks views on whether these additional reporting requirements should be extended to disability.

Ethnicity data

When developing pay gap frameworks the key question for employers is always: the gap between who and who?

The Government is proposing that employers in England and Wales should collect data using the detailed ethnicity classifications in the Government Statistical Service ethnicity harmonised standard  that was used for the 2021 Census. The Scottish census information uses slightly different classifications, and the consultation recommends that the harmonised country-specific approaches are used where possible which may be a particular challenge for an employer with a presence across the United Kingdom. The country-specific approaches are outlined in the Government’s booklet, How we collect information about employees’ ethnicities.

While data should be collected using a detailed classification structure, the Government recognises that reporting can take a different approach. It proposes that employers should report pay gaps using a binary classification (that is, employers reporting their figures for two groups only such as comparing White British employees with ethnic minority employees) as a minimum, with a threshold of at least 10 employees in each ethnic group being analysed for comparative purposes in order to preserve privacy. In order to meet this threshold, the consultation suggests that employers may need to combine some ethnic groups.

The Government proposes three options for binary classifications in preference order:

• Option 1 – Employers should report on a comparison between White British employees and all other ethnic minority groups combined.
• Option 2 – If an employer is not collecting information on employees in the specific White British category (or there are fewer than 10 employees in this category), they should report on the comparison between White employees and employees in the other groups combined.
• Option 3 – If an employer has fewer than 10 White British employees or White employees, they should report on the comparison between the largest ethnic group in the organisation and all other groups combined.

Disability data

The consultation also proposes taking a binary approach, measuring the disability pay gap by comparing the pay of disabled employees with non-disabled employees rather than taking an impairment type approach which would risk individuals becoming identifiable and involve more complex calculations where people have multiple impairments. The consultation proposes using the Equality Act 2010 definition of 'disability' as the basis of identifying disabled employees for pay gap reporting purposes to ensure consistency and seeks views on that proposal. The consultation recognises that collecting data on disability will be dependent on employees self-reporting. As for ethnicity, the Government proposes that there should be a minimum of 10 employees in each group being compared to protect employees’ privacy and to ensure statistical robustness.

The consultation does not address the challenges of self-disclosure for disabled employees or a potential reluctance to inform their employer about a disability. While single figure disability reporting may be helpful at a statistical level, this lack of depth is going to make it more difficult to identify the collective solutions for tackling a disability pay gap, which will vary depending on the nature of the disability and the particular barriers experienced by disabled employees in the workplace.

Action plans, publication and enforcement

The consultation seeks views on whether employers should be required to produce action plans to address any ethnicity and disability pay gaps identified. The consultation suggests that action plans can help employers identify why they have a pay gap and what they are doing to close it. Currently employers are encouraged to produce an action plan to tackle a gender pay gap, but there is no requirement to do so. Many employers include this type of information in their supporting narrative instead. Notably, the Employment Rights Bill includes a provision requiring action plans to be put in place to address gender pay gaps. This provision was responsive to criticisms that the gender pay gap regime only requires employers to report on a pay gap; there is no obligation to take positive action to address it.

It is proposed that employers will report their ethnicity and disability pay gap data online using the existing portal service for gender pay gap reporting which will have the benefit of being familiar to employers who are already required to report on their gender pay gap. The Equality and Human Rights Commission (EHRC) will enforce ethnicity and disability pay gap reporting, using the same enforcement policy as for gender pay gap reporting. This will include, for example, issuing warning notices to employers who have failed to report as well as ‘naming and shaming’ those who have failed to report.

Data protection considerations

Ethnicity and disability data is ‘special category data’ and therefore tighter rules apply in relation to the processing, security and retention of this data. A lawful basis for processing should be established together with a relevant processing condition and, given the volume of special category data being processed, consideration should also be given to carrying out a data protection impact assessment. When an employer asks an employee to disclose their ethnicity and disability data it must provide them with certain information including the purpose of processing.

Next steps

Although, as outlined above, the timing of the implementation of mandatory ethnicity and disability pay gap reporting is uncertain and may be a lower priority than the proposed changes already announced under the Employment Rights Bill which are not expected to come into effect until 2026, employers can take steps now to prepare for the change or even to start to report voluntarily on their ethnicity and/or disability pay gaps. Those steps might include:

• Auditing your current approach to diversity data collection and specifically looking at the census classifications around ethnicity.
• Analysing the breakdown of your workforce by ethnicity and disability. 
• Assessing your disclosure rates for disability and ethnicity in relation to any existing diversity data monitoring.
• Considering where there may be gaps between what is currently being captured and what is being proposed and seeking additional budgetary approvals for the enhanced diversity data gathering and reporting requirements.
• Ensuring that, before any changes are made to diversity data collection, those changes are compliant with data privacy requirements. 
• Developing a communications plan to build trust and increase response rates amongst your workforce. 

For those looking to shape the future landscape, there is still plenty of time to prepare responses to the consultation. CMS’ UK Employment team has advised extensively on gender pay gap reporting and other diversity data related projects, including data collection, calculations, employee communications, targeted initiatives to close a pay gap and pay gap reporting. If you require support on any diversity data related projects within your business, please get in touch with your usual contact in the team.