UK Government confirms mandatory ethnicity and disability pay gap reporting for large employers

The Government has confirmed that mandatory ethnicity and disability pay gap reporting will be introduced for large employers. No specific date has been scheduled for implementation, but the Government’s impact assessment says that the regime should be “operational and in place by 2029”. Employers now have sufficient information to start planning for when the law comes into force.  This is particularly important for those employers who currently do not capture ethnicity or disability data in the categories prescribed in the legislation, as implementing a diversity data project on this scale will require a significant lead in time. In this legal update we explain the proposals and next steps for employers. 

Mirroring the gender pay gap framework

The Government intends to align the new reporting obligations as closely as possible with the existing gender pay gap reporting framework. The new regime will apply to employers with 250 or more employees in Great Britain and will require publication of the same six metrics used for gender pay gap reporting - mean and median hourly pay differences, mean and median bonus pay differences, the proportion of employees receiving a bonus, and pay quartile distribution.

Private and voluntary sector employers will be required to collect data as of 5 April each year and must publish their reports by 4 April of the following year. Employers with fewer than 250 employees will be encouraged, though not required, to report on a voluntary basis.

New measures – workforce composition and declaration rates

Large employers will also need to report on workforce composition by ethnicity and disability. Importantly, they must also publish declaration rates - the proportion of employees who choose not to disclose their ethnicity or disability status. This information provides important context as high non-declaration rates can significantly skew the reliability of reported figures. It should also encourage employers to create a workplace culture in which employees feel comfortable sharing this information.

Categories and reporting 

1. Ethnicity

Employers will be required to collect ethnicity data using the same set of questions used in the Government Statistical Service's harmonised standard (there are 19 ethnicity classifications in this standard). There are slightly different questions in the ethnicity harmonised standard across England, Wales and Scotland, and the Government has said guidance will be published to deal with this.  

At a minimum, employers must report a binary comparison between the white group and all other ethnic groups combined. Where the numbers are sufficient to meet the minimum threshold, employers should aggregate individual ethnic groups into five broad ONS groups when reporting: White; Asian or Asian British; Black, Black British, Caribbean or African; mixed or multiple ethnic groups; and other ethnic groups. It is expected that the threshold will be set at 10 but the Government is considering this matter further. Therefore, while data collection should use detailed classification the same level of detail is not required when reporting, due to concerns about anonymity and threshold figures. The Government has said they will produce guidance on the aggregation of data. 

2. Disability

Disability reporting will use a binary comparison between disabled and non-disabled employees, applying the Equality Act 2010 definition. Minimum thresholds will apply across the framework to protect employee anonymity, though the precise levels have not yet been confirmed. The Government has also signalled its intention to future-proof the legislation to allow for more detailed disability reporting over time. Employees can be reluctant to disclose if they have a disability, and in some situations may not consider themselves to be disabled. 

Mandatory action plans

Employers will be required to report data and publish action plans setting out the steps they are taking to address ethnicity and disability pay gaps. These will be harmonised with the forthcoming mandatory gender pay gap and menopause action plans, expected to become compulsory from spring 2027, so that employers can produce a single consolidated plan covering all areas. 

Enforcement

Enforcement will mirror the current gender pay gap regime, with the Equality and Human Rights Commission (EHRC) responsible for ensuring compliance. The Government plans to discuss enforcement arrangements further with the EHRC as the detailed requirements are finalised. 

Future steps

The reporting requirements will be enacted through the anticipated Equality (Race and Disability) Bill, with detailed obligations set out in secondary legislation. Notably, the recent response to the consultation on the topic includes indicative draft clauses but the rest of the Bill has yet to be published and will then have to proceed through Parliament. 

Steps for employers

As we have discussed in previous updates ( Government launches consultation on mandatory ethnicity and disability pay gap reporting for employers, Voluntary ethnicity pay reporting), collecting ethnicity and disability data involves the collection of special category data covered by data protection legislation. The collection process therefore must be carefully managed and can be a sensitive process. Employers are advised to start doing the groundwork now.

Practical steps include:

• auditing any existing diversity data collection methods to determine whether additional classifications need to be built in; 
• for those employers who do not gather ethnicity or disability diversity data, determining what method will be most effective for their organisation in terms of gathering the information – will this be an extension of their current HR system or is a new system required; 
• taking advice on data protection considerations including the lawful basis for processing, data privacy notice implications and depending on the basis/condition decide whether an appropriate policy document is required; and
• ensuring the culture of the organisation is such that staff are comfortable self-disclosing their diversity data. Good communication, confidentiality and transparency about the purpose of the request are essential.

Co-authored by Kainat Shah.