Earlier this month, the UK government closed the consultation on the introduction of mandatory ethnicity and disability pay gap reporting for certain employers, including those in the financial services sector. As we await the outcome of the consultation, this article looks to discuss what we can likely expect.

This consultation which applied to “large employers” and “large public bodies”, that is, those with 250 or more employees, will be used to inform the government’s drafting of the proposed Equality (Race and Disability) Bill with a view to ensuring that the legislation provides employers with a clear framework as to what will be required of them.

Data

Large employers have been required to report their gender pay gap data since 2017 in a bid to create greater transparency for employers and employees; this new Bill will likely use a similar reporting framework for ethnicity and disability pay gap reporting.

It is expected that employers will be required to use data from a “snapshot date” of April 5 each year and report their gaps within 12 months. This data will be reported online, in a similar way to how gender pay gaps are reported and be enforced by the Equality and Human Rights Commission, which currently enforces gender pay gap reporting. The following will be required to be included:

1. mean differences in average hourly pay;
2. median differences in average hourly pay;
3. pay quarters – 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.

It is also expected that the Government will require employers to report on the overall breakdown of their workforce by ethnicity and disability and the percentage of employees who did not disclose their personal data on their ethnicity and disability.

The consultation sought views on whether employers should have to produce “action plans” for ethnicity and disability pay gaps (a similar proposal for gender pay gap “action plans” is currently included in the Employment Rights Bill). This would provide employers with an opportunity to explain the reasons for any pay gaps and the steps they are taking to address them.

In relation to ethnicity pay gap reporting specifically, the Government has proposed employees self-report their ethnicity (with an option to opt out and therefore not a legal requirement) whilst those who wish to should select their ethnicity from the 18 classifications used in the Government Statistical Service ethnicity harmonised standard that was used for the 2021 Census.

Minimum thresholds

The government has proposed that the minimum threshold for the reporting on ethnic pay gaps should be 10 employees in any ethnic group being analysed in terms of pay. Where there are fewer than 10, employers should combine ethnic groups together, following the guidance on ethnicity data from the Office for National Statistics to ensure groupings are as comparable as possible. Where there are smaller numbers of employees in different ethnic groups, the Government has advised that employers report a “binary classification”, for example, reporting the comparison between the largest ethnic group in the organisation and all other groups combined.

Views were also sought on whether large public bodies such as universities should report on ethnicity pay difference by grade or salary bands and data relating to recruitment, retention, and progression by ethnicity.

Turning to the disability pay gap reporting, the government has proposed using the definition of disability as outlined in the Equality Act. It has also proposed to making the collection for this data a responsibility of employers. However, as with ethnicity pay gap reporting, employees will self-report (or can opt out of reporting) their disability status.

A binary approach to disability pay gap calculations is being looked at. This will mean that all disabled employees will be grouped together regardless of their disability. Employers will then be required to compare those that are disabled with employees that are not. Employers will not be required to collect and publish data about different impairment types.

There should be a minimum of 10 employees in each group being compared. If there are less than 10 employees with disabilities, it is presumed that the employer will still be required to file a report explaining that they cannot publish a disability pay gap to reduce the risk of individuals becoming identifiable.

Practical implications

The practical implications will be widespread for employers as many will not have been collecting and analysing such data to date. The consultation did not specify when these reporting requirements will be introduced, although the Government has stated it will be publishing the draft Equality (Race and Disability) Bill this parliamentary session. The earliest the reporting requirements will be introduced is 2026 with the first reports due in 2027.

The collection of ethnicity and disability data will likely be a challenging task for employers who will need to ensure that they approach their obligations in a way that does not compromise employee privacy data protection law. Calculating the average pay of a dataset as small as 10 employees may result in individual identification being possible and its usefulness is questionable as there may be significant fluctuations if employees join or leave.

Employers may also be concerned about the potential triggering liabilities and responsibilities if employees come forward and disclose that they consider themselves to be disabled when they have not previously done so.