Key takeaways

• The government has committed, in the 2024 Labour manifesto and since then in the King's Speech in July 2024, to introduce ethnicity and pay gap reporting for large employers. 
• The consultation seeks views on how these measures should be implemented and proposes that a similar framework to that used for gender pay gap reporting be used as the basis of the new obligation. Therefore, many of the proposals will be unsurprising to employers. 
• However, the consultation recognises that there are additional differences in data collection and calculations for ethnicity and disability pay gap reporting purposes. Employers should ask employees to report their own ethnicity, with an option to opt out. 
• The responses to the consultation will be used to shape proposals to be included in the upcoming Equality (Race and Disability) Bill. 
• The consultation closes on 10 June 2025. If you would like to respond, you can do so here.
• For more information or to discuss what this means for your business, please get in touch with your usual Baker McKenzie contact.

In more detail

The Labour Party election manifesto last year, followed by the new government's King's Speech in July 2024, promised to legislate to deliver mandatory ethnicity and disability pay gap reporting for large employers (defined to be those with 250 or more employees – those who are also required to publish gender pay reports each year). 

This consultation seeks views on how these measures can be implemented and draws on the previous disability workforce reporting consultation in 2021-22. 

Responses received to this consultation will be used to shape proposals in a forthcoming Equality (Race and Disability) Bill. A Call for Evidence will also be issued to inform other parts of the Bill, including extending equal pay protection to ethnic minority and disabled people.

Scope of obligations

While there are ongoing discussions with the Scottish and Welsh governments, the government's intention is that ethnicity and disability pay gap reporting should be mandatory for large (250 or more employees) private or voluntary sector organisations in Great Britain (England, Wales and Scotland only), as well as large English public sector bodies, and certain public authorities across Great Britain. 

Pay gap calculations

The government proposes to use the same set of pay gap measures as currently apply to gender pay reporting. This would mean employers were required to report on 

• Mean differences in average hourly pay. 
• Median differences in average hourly pay.
• Pay quarters – the percentage of employees in 4 equally-sized groups, ranked from highest to lowest hourly pay.
• Mean differences in bonus pay. 
• Median differences in bonus pay.
• The percentage of employees receiving bonus pay for the relevant protected characteristic.

In addition employers would be required to report on the overall breakdown of their workforce by ethnicity and disability, and the percentage of employees who did not disclose this data, to give context to the pay reporting statistics.

Action plans 

An action plan can help employers identify why they have a pay gap, and how they intend to close it. An effective action plan should include clear, specific targets and a time frame for their completion. 

The previous government consulted on disability workforce reporting. The findings of this consultation highlighted the need to support reporting with initiatives to increase workplace inequality, and the current government has suggested that ethnicity and disability pay gap action plans should be made mandatory for in scope employers. 

Dates, deadlines and enforcement

These would be the same as for gender pay gap reporting: for private sector employers, a snapshot date of 5 April each year and a requirement to report the data by 4 April the following year.  The EHRC's current gender pay gap enforcement policy would be extended to ethnicity and pay gap reporting. 

Ethnicity data collection

There are two approaches to ethnicity data collection and reporting: binary and non-binary basis. Non-binary is preferred, since it enables pay gaps between different ethnic groups to be identified with greater accuracy, and more effective solutions to reduce the gap put in place. 

Employees should be asked to report their own ethnicity, using the detailed ethnicity classifications used by the government (for example, in the 2021 UK Census). These do vary across the countries of the UK, so employers with a workforce spread across the UK would need to collate the data carefully. 

The government encourages employers to publish pay gap data across as many ethnic groups as they can, but proposes that there should be at least 10 employees in any ethnic group being analysed. To do this, it may be necessary to add some ethnic groups together to reach an aggregate of 10 or over.  As employers will need to be as coherent and comparable as possible, the consultation suggests that employers follow the existing Office for National Statistics guidance. 

When might reporting against all ethnic groups not be possible?

Where this is not possible, because for example an employer has smaller numbers of employees in different ethnic groups, they would be able to report their figures on a binary basis. This would mean, for example:

• (Government's preferred solution) White British employees, and all others.
• (Next preferred solution) White employees (if there are fewer than 10 White British employees, but more than 10 White employees in total) and all others.
• (Last preferred solution) Majority non-White ethnic group in the workforce, and all others.

Disability data collection 

The definition of disability for these purposes would be the Equality Act definition, and employees would be asked to report disability themselves, with an opt out option if they do not wish to disclose an impairment to their employer.

There are also binary (the difference in pay between and disabled and non-disabled employees) and non-binary (recognising different types of impairment) approaches to disability data collection and pay gap reporting.  The government proposes to take the simpler binary approach, believing it to be easier for employers to implement.

Like ethnicity, there should be at least 10 employees in each group being compared.