Closing the gaps: the push for extended pay gap reporting

The government intends to introduce mandatory reporting of ethnic minority and disability pay gaps. A consultation has been launched, inviting feedback on these important proposals.

Since 2017, organisations with a headcount of 250 or more have been required to report their gender pay gaps, a step introduced in a bid towards addressing the pay disparity between men and women. In 2019, the previous government considered whether to extend reporting requirements to cover ethnicity pay, but decided against this following a public consultation, noting in its response to the consultation, that whilst ethnicity pay gap reporting can be a ‘valuable tool to assist employers, it may not always be the most appropriate mechanism for every type of employer’. However despite there being no legal requirement to report on ethnicity pay gaps, many organisations do report this data voluntarily as part of their diversity, equality and inclusion (DEI) data, and in April 2023 government guidance on voluntary reporting of ethnicity pay gaps was published.

This government sets out in Next Steps to Make Work Pay, (the paper where it expands on how it will deliver its programme for employment law reform contained in Make Work Pay) its intention to require larger companies to publish information on their ethnicity and disability pay gaps. The Plan for Change (which sets out milestones that the government hopes to reach by the end of this Parliament) aims to ‘create a more equal society in which people can thrive whatever their background’. To this end, the government intends to introduce the Equality (Race and Disability) Bill which will include a mandatory requirement on employers to report on their pay gaps in relation to ethnic minority and disabled employees. To help inform the drafting of the legislation, the government launched a consultation on 18 March 2025, inviting feedback on these important proposals.

What is proposed?

Sensibly the consultation is based on the premise that any new reporting requirements should reflect the framework of the existing gender pay gap reporting regime, where possible, to minimise the additional burden and allow businesses to use their existing gender pay processes and systems. For example:

• The new requirements would apply to ‘large’ employers – and the consultation defines this as those with 250 or more employees on the snapshot date (noting the gender pay gap regulations apply the Equality Act definition of employees, which includes workers). This consultation does not seek views on the definition of ‘large employer’ or ‘employee’, so the assumption is that this will not change.

• Employers would report on the same pay gap measures, including mean and median differences in average hourly pay and bonus pay, and the percentage of employees with the relevant protected characteristic receiving bonuses.

• The same types of organisation would be in scope, making reporting mandatory for large private and voluntary sector employers, large public sector bodies in England, and certain public authorities operating in relation to non-devolved functions.

• The same reporting dates as gender pay gap reporting would apply, with a snapshot date of 5 April for private and voluntary sectors and 31 March for public bodies, and reports published within 12 months of the snapshot date.

• The Equality and Human Rights Commission (EHRC) would have its enforcement policy extended to cover failures to report on ethnicity and disability pay gap reporting.

The consultation sets out additional proposals for public bodies, which we have not covered here. The consultation closes on 10 June 2025, and the paper is available here.

What are the potential challenges for employers in relation to these proposals?

The consultation highlights that most ethnic minority groups earn, on average, less than White British peers, and that disabled people have, on average, lower incomes than non-disabled people, so the government’s policy aim to look to address this is understandable. However, extending reporting is not without its challenges. We consider what the proposals would mean, and some of the potential issues for employers below:

Data collection

Employers may find a lack of existing, reliable ethnicity and disability data presents a challenge to effective reporting as employees can be reluctant to divulge their data. While some employers may already request information from employees as part of the on-boarding process and / or through workplace surveys, this data is typically provided voluntarily. Current employer practice usually sees employees able to choose whether to respond to requests for this data and surveys often include the option to answer ‘prefer not to say’. The consultation suggests that there should be an opt out, so employees do not have to provide their data. This may lead to skewed data resulting in reported pay gaps that do not properly reflect the underlying workforce and their pay. As the quality of the data will differ as between employers, it may also make any benchmarking, or comparison with other employers, unreliable.

To address the potential issue of employees not engaging or choosing to opt out, the government suggests that employers report on the percentage of employees who do not disclose their personal data on their ethnicity and disability. This would provide a clearer picture of the overall data collection process and highlight areas where additional efforts may be needed to encourage participation. Whilst it may be helpful to report this information to give context to the reported statistics, employers who have a low engagement rate, may not find this helpful information to disclose more generally. For those employers, the insights they may hope to gain from assessing and reporting their pay gaps are likely to be more limited.

The consultation also proposes that it should be mandatory for employers to report on the overall breakdown of the workforce by ethnicity and disability status, explaining that this would provide ‘context to an employer’s ethnicity and disability pay gap figures’. The consultation document includes an example of an organisation having increased the number of ethnic minority or disabled employees, and how this could create a wider pay gap if they had joined at entry level. Providing breakdowns can therefore illustrate a ‘clearer picture about an employer’s overall commitment to inclusiveness’.

Collection and analysis of ethnicity data

The consultation proposes that data collection should be conducted via self-disclosure, in other words, that the employees should be asked to report their own ethnicity using the Government Statistical Service (GSS) harmonised standards which categorise ethnicity into groups or backgrounds, with an option for employees to optout of providing their data. It is worth noting that these standards are currently under development.

The consultation proposes that as a minimum all large employers would be required to report on a binary basis. The consultation sets out three different options for how employers may approach this depending on their data set but broadly, these require employers to compare the largest ethnic group (which may be White British or White) against all other groups combined.

There are clear limits with a binary approach and the consultation acknowledges that reporting is most effective when it considers different ethnic groups, as there may be significant variations in earnings between groups. The consultation encourages employers who can report on their pay gaps for different ethnic groups, to do so. Comparing different ethnic groups provides a clearer picture of pay disparities and can help identify issues that need to be addressed. The existing guidance on voluntary reporting of ethnicity pay gaps recommends caution when drawing conclusions about pay gap results where a binary split (i.e. comparing white and ethnic minority employees) has been used for the calculation, as it provides limited information about any actual disparities.

However, a more detailed data analysis and report may risk disclosing information about individual employees. To avoid this and to protect employee privacy it is proposed that there should be a minimum of 10 employees in any ethnic group that is being compared. If this threshold is not met, the proposal is that ethnic groups should be aggregated. The consultation suggests that the ONS guidance on ethnicity data should be followed, to ensure that groupings are coherent and comparable.

For those employers who will be subject to these reporting requirements and who have smaller organisations and / or a less diverse workforce, reporting may be limited to a binary distinction to comply with the minimum threshold of 10 employees, to ensure privacy for individual employees. It seems likely that for organisations with smaller data sets, there may be insufficient data from which to draw meaningful conclusions about pay disparities.

It is also worth noting that the consultation does not consider the impact of an employer’s geographic location. Organisations based in areas with a small ethnic minority population may face unique challenges in addressing pay gaps. In such regions, the pool of potential candidates from ethnic minority backgrounds may be limited, making it more difficult to implement DEI initiatives effectively. Additionally, the smaller size of the ethnic minority population may result in less granular data, which can hinder the ability to identify and address specific pay disparities.

Collection and analysis of disability data

The consultation proposes that employees report disability via self-disclosure. However, it is proposed that disability would be as defined under the Equality Act 2010 – a physical or mental condition that has a substantial and long-term impact on a person’s ability to do normal day-to-day activities. This definition encompasses a wide range of disabilities, including physical, mental, and sensory impairments, as well as chronic illnesses and learning disabilities. The question of whether an individual is disabled as defined under the Equality Act is a complex multi-faceted legal test (and, as such, where a claim is brought, would be determined by an Employment Tribunal after considering evidence and medical reports). Requiring employees to self-assess in accordance with the Equality Act definition runs the risk of inaccurate datasets. For example, individuals may interpret the test differently from one another (and differently from an Employment Tribunal), they may take very different views on whether their particular condition(s) amounts to a disability, under the test, or at all, and given the nature of what is being asked concerns their health, they may not feel it is data they wish to share. There are further challenges in capturing up-to-date data in that whether an employee has a disability may change over time if they develop or are diagnosed with a condition and/or if their condition fluctuates or deteriorates.

Self-disclosure could also inadvertently lead to employers having to closely monitor responses, as they could be put on notice of a disability if an employee openly shares that they have a disability via self-disclosure. Even where disclosure is on an anonymous basis, there could be identifying factors which could mean that the employer should reasonably have been aware of a disability. It could also increase the risk of claims for a failure to make reasonable adjustments.

The consultation outlines two approaches to data analysis for disability pay gap reporting: comparing pay between disabled and non-disabled employees (a binary approach); and measuring the difference in pay between employees with different impairment types and non-disabled employees. The consultation proposes following a binary approach, rather than grouping employees into categories based on different types of disabilities, as the binary method avoids the complexities and potential inaccuracies that could arise from such categorisation, particularly for employees who may have multiple disabilities.

To protect employee privacy and avoid disclosing information about individual employees, the consultation proposes that, as with ethnicity reporting, there should be a minimum of 10 employees in each group being compared. This threshold is intended to ensure that the data is sufficiently anonymised and that individual employees cannot be identified through the reporting, although it is not clear what it would mean if there were fewer than 10 in either category. The proposal in the consultation is to follow a binary approach comparing pay between disabled and non-disabled employees, so would this disapply the need to report?

Action plans for addressing ethnicity and disability pay gaps

The consultation seeks views on whether employers should be required to produce action plans to ‘explain the reasons behind any pay gaps and set out the actions they are taking to improve equality in their workforce’. The government is also looking to include action plans in gender pay gap reporting obligations, with the recent Employment Rights Bill setting out a duty for employers to create and publish action plans showing the steps they are taking to address their gender pay gap and support employees through the menopause. Employers would be able to include an explanation of what they intend to do to improve workplace equality for ethnic minority and disabled employees within their action plan, and to outline the measures they are implementing to address disparities, such as targeted recruitment efforts, mentorship programs, and training initiatives aimed at promoting DEI within the workplace. Within an action plan an employer can also explain why they have a pay gap, for example, due to differences in job roles, levels of experience, and educational qualifications.

Reception so far

Whilst the intention behind expanded pay gap reporting is appreciated, there has been mixed responses to the government’s proposals. Many employers will of course be supportive of initiatives which can improve DEI. However, there is scepticism from certain quarters around the value in extending pay gap reporting. For some the argument is simply that pay gap reporting has seemingly not proved particularly effective as a mechanism for reducing the gender pay gap so they query the justification for extending reporting requirements. For others, concerns lie around the difficulties in collecting reliable ethnicity and disability data which would impact the quality of the results. The Business Disability Forum has published a report highlighting that mandatory disability pay gap reporting might not lead to meaningful change for disabled employees. Their research suggests that focusing solely on numbers and pay gaps could overlook the broader experiences and challenges faced by disabled individuals in the workplace. It warns that mandatory reporting might also have unintended consequences, such as discouraging employers from making reasonable adjustments for disabled employees to avoid widening the pay gap. They emphasise the need for reporting to measure the actual experiences of disabled employees, rather than just providing a snapshot of employment and pay at a specific moment.

Next steps

Whilst these proposals are some way off from becoming law, and the consultation contains only proposals, nothing is yet set in stone, the direction of travel is clear. If you are an employer, HR professional, or DEI leader, now is the time to assess your current data sets and reporting practices – what data do you currently hold on ethnicity and disability, is it up-to-date and where are the gaps? Unlike gender pay gap reporting, where you will already hold data on your employees’ gender for payroll purposes, you may not have complete and accurate data relating to ethnicity and disability on record. Understanding the make-up of your workforce can be useful for many different reasons of which pay gap reporting is just one, but collecting the data can take time.

To encourage employees to share their data, creating an environment where employees feel comfortable disclosing their data will be important. Employees may be wary that their employer has ulterior motives in collecting the data so employers should take steps to minimise this reaction. Clearly communicating the purpose and benefits of data collection, should ensure employees understand how the information will be used to help promote equality and identify and address pay gaps. By fostering trust and transparency, employers can improve the accuracy and completeness of the data collected, ultimately leading to more effective reporting and meaningful progress in closing pay gaps.

How can we help?

Our team of experts can help you understand the implications of extended pay reporting for your organisation including how to address data collection issues. Please contact Katherine Flower or Rebecca Mullins or your usual Burges Salmon contact to find our more.

Disclaimer: This update gives general information only and is not intended to be exhaustive. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its contents.