Employers must prepare for UK ethnicity and disability pay gap reporting

Pinsent Masons recently asked clients for their say on the introduction of reporting requirements to aid our response to the UK government’s consultation on the Equality (Race and Disability) Bill, which will introduce mandatory ethnicity and disability pay gap reporting.

Employers across different business sectors provided input and while many voiced strong support for reporting, the findings also reveal that meeting the mandatory requirements will take preparation. Although the new legal obligations are unlikely to come into force before 2027, we encourage employers to start preparations now.

Familiar frameworks favoured but readiness varies

While the majority of employers expressed support for the proposals, fewer than half currently calculate disability or ethnicity pay gaps. This suggests that, despite positive sentiment, significant groundwork will be required before the new measures can be implemented effectively.

Perhaps to minimise such groundwork, some clients suggested aligning any new frameworks with the existing gender pay gap reporting model and the use of established legal definitions for ethnicity and disability. Experience gained from gender pay gap reporting will be valuable to employers when implementing disability and ethnicity pay gap reporting.

However, ethnicity and disability data also present unique challenges. These include sensitivities around self-identification, data protection concerns, and the need for tailored strategies to address disparities.

Action plans

Just over half of the employers we spoke to already produce action plans in relation to gender pay gaps, despite there currently being no legal requirement to do so. However, the Employment Rights Bill will make gender pay gap actions plans mandatory. In contrast, very few employers asked currently produce action plans for ethnicity or disability gaps. Nevertheless, there was strong support for making such action plans mandatory.

Action plans should be purposeful and aim to deliver objective benefits by identifying specific actions required to close pay gaps. Linking reporting with follow-up action is essential to avoid stagnation and ensure year-on-year progress.

Data collection complexities

One of the most significant barriers identified was the challenge of collecting accurate and comprehensive data. Of the clients asked, only 28% reported that at least 80% of their workforce had disclosed disability status, while 43% said the same for ethnicity. Additionally, employees who meet the legal definition of disability under the Equality Act may not identify as disabled, particularly among neurodivergent individuals.

Disabled employees may be more likely to be absent during the snapshot month used for reporting, especially if they are on reduced sick pay – potentially skewing the data.

Another concern raised by employers was the frequency of data updates. If disability status is only recorded at the point of hiring, it may not reflect changes in an employee’s health status over time. This could result in underreporting or outdated information being used in pay gap calculations.

Most respondents agreed that a minimum group size of 10 should be required when comparing pay gaps – such as between disabled and non-disabled employees or among different ethnic groups – to protect individual privacy.

Collecting data for pay gap reporting involves a data management and a cultural exercise. Employers need to build trust and communicate clearly with employees about how their sensitive personal data will be used. Better cultural outcomes, as well as better figures to publicly report, are likely to be achieved if the exercise is based on reliable data.

Organisations that already collect ethnicity and disability data will be better positioned to comply with future requirements. Those that do not should begin assessing how to introduce data collection processes and engage with their workforce to build trust and encourage disclosure.