New mandatory ethnicity and disability pay gap reporting for large employers

Following a recent consultation, on proposals for mandatory ethnicity and disability pay gap reporting by large employers, and in light of the widespread support amongst those who responded (87%), the Government has now confirmed that the proposals will be going ahead.

Though the new reporting requirements are unlikely to come into force on a compulsory basis until some time in 2027 or 2028, employers should begin taking steps now to make sure that they understand what will be required and how to comply.

Will this apply to my organisation?

All “large employers”, with 250 or more employees, will have to comply with the new duties. This threshold mirrors gender pay gap reporting requirements.

Smaller organisations will not be required to report, but will be encouraged to do so on a voluntary basis.

What will we need to report on?

Ethnicity pay gaps will have to be reported

Employers will be required to publish a binary comparison between the pay of white employees and the pay of employees in all other ethnic groups.

In addition (where numbers permit), employers will also be required to publish comparisons between the pay of employees in the five broad ethnic groups used by the Office for National Statistics:

• White;
• Asian, Asian British;
• Black, Black British, Caribbean, African;
• mixed or multiple ethnic groups; and
• other ethnic groups.

The Government will provide guidance for employers on how to aggregate different ethnic groups in accordance with the above categories; and there will be a minimum threshold for each group, in order to protect anonymity.

Ethnicity data will need to be collected using the Government Statistical Service harmonised ethnicity standard (which is currently subject to review). However, disclosure of ethnicity will be voluntary for employees in any diversity questionnaires, and employers must provide a “prefer not to say” option.

Disability pay gaps will also have to be reported

Employers will be required to publish a binary comparison between the pay of disabled and non-disabled employees.

An employee will be disabled for these purposes if they meet the definition of disability set out in section 6 of the Equality Act 2010 (“EqA”). That is to say, if they have a long-term (i.e. likely to last for 12 months or more) physical or mental impairment that has a substantial adverse effect on their ability to carry out day-to-day activities.

A minimum employee threshold will also apply here, to safeguard anonymity.

As with ethnicity data, disclosure of disability will be voluntary for employees in any diversity questionnaires, and employers must provide a “prefer not to say” option.

Specific pay data will need to be included

For both ethnicity and disability pay gap reporting, employers will be required to publish the same six metrics as are currently used for gender pay gap reporting:

• mean differences in average hourly pay;
• median differences in average hourly pay;
• mean differences in bonus pay;
• median differences in bonus pay;
• the percentage of employees in each pay quartile; and
• the percentage of employees receiving bonus pay.

Employers will also be required to publish “workforce composition data”, to provide context to their pay gap data, by reporting on the overall breakdown of their workforce by ethnicity and disability; as well as “declaration rates”, showing the percentage of employees who did not disclose their ethnicity or disability status.

Detailed step-by-step guidance will be published, to help organisations perform the relevant calculations (this will likely be similar to that for gender pay gap reporting); and specific guidance will also be issued on improving declaration rates and building employee trust.

Equality action plans will have to be published

Lastly, employers will be required to publish equality action plans, setting out the steps they are taking to address any disability and / or ethnicity pay gap(s) identified.

More specifically, employers will have to report on the measures they are taking to advance equality of opportunity between employees:

• who are disabled and those who are not;
• with different types of disability;
• of different descriptions of race.

The Government has said that it intends to harmonise action plans across gender, ethnicity and disability reporting; thus enabling employers to produce a single equality action plan (where appropriate). Further detail will be provided in due course.

Equal pay protection will be extended to include ethnicity and disability

Currently, equal pay legislation only applies to the protected characteristic of sex – i.e. women and men are entitled to equal pay for equal work. However, the Government plans to broaden this protection to include ethnicity and disability.

When will these requirements come into force?

The draft Equality (Race and Disability) Bill, which will establish the legal framework for the new pay gap reporting requirements, is still making its way through parliament.

No timeline for the introduction of mandatory ethnicity and disability pay gap reporting has been provided at this stage; but measures are expected to be introduced from 2027, with the first reporting deadline likely to be in 2028.

What should we be doing now?

Organisations with 250 or more employees should be taking steps now to prepare for the new reporting requirements; by, for example:

• considering whether ethnicity and disability data is currently requested and stored, and if so how;
• reviewing relevant HR systems, policies and procedures, to assess their ability to collect and store the relevant data and ensure that they are fit for purpose;
• reviewing data protection policies, privacy notices and the like, to ensure compliance with data protection legislation;
• planning and / or updating internal communications to support voluntary disclosure of data; and
• reviewing and understanding the new reporting requirements, and planning how these will be implemented in practice.

If you have any questions on anything outlined above, please get in touch, our team of experienced employment and data protection lawyers would be happy to help.

The material in this article is provided for guidance and general information only and is not intended to constitute legal or other professional advice upon which you should rely. In particular, the information should not be used as a substitute for a full and proper consultation with a suitably qualified professional. Please do contact the Bates Wells team if you require further advice.