Mind the gap: A move towards mandatory ethnicity and disability pay gap reporting
The UK government has now published its response to its consultation on mandatory ethnicity and disability pay gap reporting. The proposals set out its intended approach to introduce mandatory reporting for large employers with 250 or more employees, alongside a requirement to publish action plans to address any disparities.
The good news for employers is the plans mirror the established model for gender pay gap reporting introduced in 2017, using the same six measures: the mean and median pay gaps, the mean and median bonus gaps, bonus proportions, and quartile pay bands. In addition, the government intends to legislate to require large employers to provide a breakdown of the ethnicity and disability status of their workforces, together with disclosure of the proportion of employees who have voluntarily shared their demographic data.
The government’s decision to use the gender pay gap framework is certainly pragmatic, presenting large employers with a familiar reporting matrix. But it begs the question of whether the plans will change the pay gap dynamic in practice, or whether this is simply an exercise in transparency rather than a driver of reform.
Transparency alone won’t close pay gaps
Publication alone does not guarantee structural change, and there are a multitude of reasons why pay gaps can persist. Occupational segregation, lack of progression opportunities, part‑time working, and limited access to career development all play a role.
Post‑Covid working patterns provide a timely example. Employers are increasingly signalling a return to full‑time, attendance‑based working, which can disproportionately affect employees with disabilities or those with increased domestic responsibilities. Goldman Sachs and JP Morgan are just two recent examples of employers that have implemented high‑profile return‑to‑office mandates, highlighting how operational decisions may carry equality consequences.
While the Office for National Statistics reports in the past decade the gender pay gap among full‑time employees has fallen by more than a quarter, progress remains slow. Advisory firm Isio has estimated that, at the current rate of improvement, it could take around 40 years to close the gender pay gap entirely. Against that backdrop, there is understandable skepticism as to whether extending reporting obligations to ethnicity and disability will, in itself, lead to faster or more meaningful change.
Why proper action plans matter
It appears that the government is now placing significant emphasis on action plans as the mechanism through which pay gap reporting will translate into reform, whether gender‑, ethnicity‑ or disability‑related. These action plans are intended to be mandatory, ensuring that the new regime has greater traction rather than remaining purely informational.
See also: Ethical investing and CEO pay
Subject to legislation, action plans for gender pay gap reporting are expected to become mandatory as early as spring 2027. The intention is that reporting requirements will ultimately be harmonised, allowing employers to produce a single equality action plan covering sex, race (including ethnicity) and disability on the same reporting service. These plans are expected to articulate concrete steps and enable year‑on‑year monitoring of progress, shifting the focus away from isolated headline figures.
Do pay gap figures increase legal risk?
There is a concern that mandatory ethnicity and disability pay gap reporting could create new evidential risk in discrimination or equal pay claims, particularly where disparities are identified but not addressed.
While the proposals are designed to increase visibility of pay disparities through reporting, published pay gap figures remain aggregate measures. On their own, they are unlikely to establish liability in an individual claim. The data does not account for wider systemic factors such as workforce composition, progression patterns, occupational segregation or limited access to development opportunities, rather than unlawful decision‑making.
That said, the combination of published data and action plans may, over time, increase scrutiny. Where significant disparities persist and action plans lack substance or demonstrable impact, claimants may seek to rely on that history to argue that an employer failed to take reasonable steps once an issue had been identified.
The challenge of employee disclosure
Ethnicity and disability reporting presents particular challenges around data quality, as both rely on voluntary employee disclosure. Many disabled employees choose not to disclose their disability due to concerns around stigma, discrimination or confidentiality, which can result in incomplete or skewed data.
The legal definition of disability under the Equality Act 2010 is broad, but not always well understood by employees or HR teams, leading to inconsistency and under‑identification. Changes in disclosure rates between reporting years may therefore distort pay gap figures, complicating interpretation and comparison.
Building trust before the rules bite
It is therefore worthwhile for employers to start building trust with employees now, so that more reliable data can be produced when reporting becomes mandatory, without introducing additional legal or reputational risk. Clear communication about why data is being collected, how it will be used and how confidentiality will be protected will be key.
Starting early may also offer reputational benefits. Investors and ESG frameworks are increasingly focused on workforce inclusion metrics, and employers that adopt a transparent and considered approach to ethnicity and disability reporting may be better placed to meet stakeholder expectations.
Avoiding ‘tick‑box’ action plans
While further detail on the proposals is awaited, employers can already take steps to prepare and avoid scrutiny where action plans are perceived as superficial or unsupported.
This may include targeted interventions such as identifying areas with low disclosure rates and introducing initiatives to encourage openness, improving manager capability through training on disability‑ and ethnicity‑related issues, and ensuring managers are confident in making reasonable adjustments and navigating sensitive conversations. Employers may also benefit from developing employee networks or forums to strengthen the voice of disabled and minority employees within the organisation.
For investors, the message is that mandatory ethnicity and disability pay gap reporting is unlikely to be judged on disclosure alone. The credibility of action plans, the quality of underlying data and the ability to demonstrate progress over time will increasingly be seen as indicators of governance, risk management and long-term organisational resilience.