Employers with 250 or more employees may soon face expanded reporting requirements, as government plans introduce mandatory ethnicity and disability pay gap reporting. The proposed measures will mirror existing gender pay gap obligations, requiring organisations to provide detailed insight into pay disparities across their workforce.
Under the plans, employers will need to calculate and disclose six measures, including mean and median pay gaps, bonus pay gaps and the proportion of employees across pay quartiles. In addition, organisations must report workforce breakdowns by ethnicity and disability status, alongside data on employees who have not disclosed this information, to provide context for the findings.
The changes will also require employers to develop action plans to address any identified pay gaps. These plans are expected to align with new requirements under the Employment Rights Act 2025, which will introduce action plans for gender pay gaps and menopause support. The intention is to allow organisations to produce a single equality action plan covering sex, race including ethnicity and disability.
For employers, the shift introduces new operational demands. While many large organisations already have systems in place for gender pay gap reporting, the expansion into ethnicity and disability will require additional data collection, analysis and reporting processes.
Data Collection And Compliance Present New Challenges For Employers
A key requirement will be the collection of accurate and reliable data on ethnicity and disability, while ensuring compliance with data protection laws. Employers will need to establish systems that protect confidentiality and encourage participation, as incomplete data may affect the quality and interpretation of reporting outcomes.
Organisations must also consider how to communicate the purpose of data collection to employees. Clear explanations of how information will be used, alongside assurances around confidentiality, may influence whether staff choose to disclose personal data.
Kate Palmer, COO at Peninsula, said, “Although large employers will already have processes in place to comply with current gender pay gap reporting obligations, these new requirements will bring additional responsibilities for them to get to grips with, including data collection, reporting and action plan development. Employers who have been producing voluntary reports, may need to adjust their practices to meet the new mandatory requirements. They may also need to invest in training and resources to ensure accurate reporting and to address the findings effectively.
“Disability pay gap reporting will require employers to report a comparison of disabled employees with non-disabled employees, using the Equality Act 2010 definition of disability. The use of this definition could cause issues for employers as it is a decision for a tribunal to decide if a person meets the definition of disability in discrimination cases.”
Transparency And Workplace Impact Under New Reporting Rules
The introduction of mandatory reporting is expected to increase transparency around pay disparities, with potential implications for organisational reputation and employee confidence. Employers who address identified gaps may strengthen their position on diversity and inclusion, while those who fail to comply could face reputational damage and enforcement action, similar to existing gender pay gap requirements.
Palmer added, “Mandatory reporting is likely to increase transparency, potentially improving an organisation’s reputation for diversity and inclusion if pay gaps are proactively addressed. However, non-compliance could lead to reputational damage and enforcement actions, in line with the penalties for failing to comply with gender pay gap reporting.
“Addressing pay gaps can lead to a more inclusive workplace, improving employee morale, attracting top talent and enhancing overall organisational performance. Diverse and inclusive organisations are often more innovative and profitable, which could provide a competitive edge in the marketplace.
“Although the legislation is still in draft form and subject to the usual parliamentary process before becoming law, employers should begin preparing by reviewing their data collection processes, identifying potential pay gaps and developing strategies to address inequalities.”