Mandatory ethnicity and disability pay gap reporting has moved one step closer to becoming law, with the government opening a consultation to seek views on how the regime could work in practice. Responses to the consultation will help shape proposals to be included in the upcoming Equality (Race and Disability) Bill, that was announced in the King’s Speech in July 2024.

Companies with more than 250 employees are likely to be captured by any new obligations to mirror existing gender pay gap reporting. Large employers across Great Britain have been required to report their gender pay gap data since 2017, which the government says has led to greater transparency and gives employers important data with which to inform their actions when addressing inequalities.

Introducing mandatory ethnicity and disability pay gap reporting for large employers will provide the same impetus for positive change for people from different ethnic groups and disabled people, the government says.

In anticipation of a new regime coming into force, what should companies be doing now to ensure they are on the front foot?

Be proactive

Employers that are prompt in developing a strategy and in collating quality data now will have more time to take action by identifying pay gaps before it becomes mandatory to publish details of them.

Oliver Holmes, Head of Diversity, Equity and Inclusion at law firm Browne Jacobson, says: “While the exact details of how these rules will pan out are still under consultation, organisations can start preparing by taking proactive measures.” The firm introduced ethnicity pay gap reporting in 2020 and disability pay gap reporting in 2021.

Pay gap analysis

Organisations should review the pay and diversity data they already have and consider what further information they will need to collate, and how to do so, to build up a comprehensive picture regarding disability and ethnicity pay gaps.

Sarah Lardner, Director of Business Innovation at Innecto Reward Consulting, says conducting ethnicity and disability pay gap analyses now will help organisations get to grips with the process, identify data gaps, and understand how that affects the analysis – which then informs what steps they need to take. “These early runs will put them in a good spot for when reporting becomes mandatory and give them time to sort out any big data gaps.” 

Employee communication and engagement

Collecting comprehensive diversity data from employees needs to be the immediate focus, as low participation can undermine the analysis. Employees may be reluctant to share data if they’re not sure how it will be used, Lardner says. “Regularly explaining why this data is needed and how it benefits employees, along with sharing the results of the analysis, will be vital for getting good disclosure rates.”

Daniel Zona, an associate in the employment team at law firm Kingsley Napley, says in the absence of good data, organisations will need to consider what they can do about communication and engagement to encourage employees to provide this information: “While this form of reporting is likely to rely on self-identification by employees, it is possible that companies will at least be expected to make reasonable efforts to encourage disclosure of this information to allow them to accurately report on pay gaps.” 

Build a culture of transparency and trust

Employees will be asked to self-report voluntarily, so building a culture of transparency and trust lays important foundations to encourage higher employee diversity data disclosure rates. 

“This is not a change that can happen overnight. It will require companies to communicate clearly and consistently, providing employees with the confidence to share information that will support the reporting. Without that, the data reported could be misleading; indicating a larger or smaller pay gap than the company actually has,” says Sarah Edwards, Senior Employment Law Solicitor at Howarths.

Companies must also consider the data protection rights of their employees and how to lawfully process this data, and may need to update or introduce new company policies in relation to this data collection.

Build equality action plans

Looking to the future, businesses also need to consider equality action plans, which are part of the consultation. “While it will be compulsory to issue data, it has not yet been decided if this will extend to companies having to provide proposals for how they will address and reduce the pay gaps they have. Taking the time to consider this now is one way to prepare for what is likely to become a requirement by law,” Edwards says.

“This data provides more comprehensive insights to help organisations understand where there may still be inequities. It can help provide more targeted action plans and interventions to drive more meaningful change around recruitment, development, progression and retention initiatives,” Holmes says.

“Organisations with diversity networks and employee resource groups can already start to take proactive steps to engage and collaborate with them to improve disclosure rates. These networks will play an important role in enhancing the quality of an organisation’s data to help maximise the impact pay gap reporting can make,” Holmes adds.

See the bigger picture

With addressing inequalities being the end goal, identifying pay gaps is just the starting point. Advita Patel, Inclusion Strategist and Founder of CommsRebel, says organisations should also look at where disparities might already exist, not just in pay but in recruitment pipelines, progression opportunities, performance ratings and retention rates. “Combine data analysis with employee feedback and involve your employee networks. Conduct focus groups and listen to your colleagues without defensiveness,” she says.

Remember to communicate your intent and be open about where you are now and where you want to be, Patel adds. “This isn't about perfection; it’s about progress. The organisations that use this moment to take meaningful, measurable action before they’re required will be the ones best placed to lead with credibility and earn lasting trust.”