Corporate law update: 28 March - 2 April - Macfarlanes

Government to proceed with mandatory ethnicity and disability pay gap reporting

The Government has stated it intends to proceed with legislation to require larger employers to report on pay gap based on ethnicity and disability.

The announcement follows the Government’s previous consultation on mandatory reporting, which it launched in March 2025. The organisation Explain Market Research, which analysed the responses to that consultation, has published a separate report of its findings.

The new requirements will be modelled on the UK’s existing gender pay gap reporting regime, including the same reporting measures and calculations. These include mean and median differences in hourly pay and bonus pay.

The key points to note are as follows.

The new regime will apply to private sector organisations in England, Scotland or Wales, as well as public sector bodies in England, that employ 250 or more people.

Broadly speaking, ethnicity and disability reporting will follow the same model as the UK’s current gender pay gap reporting regime. Reporting will adopt the same “snapshot date” as for gender pay gap and will need to be published online in the same way.

The only difference is that there will be no requirement to break down pay gaps by grade and/or salary band, although organisations will be encouraged to do so and the Government will issue guidance on this.

Employers will also need to report on the breakdown of their workforce by ethnicity and disability, as well as the percentage of employees who did not provide their ethnicity or disability status.

Employers will need to produce an action plan to improve workplace equality for ethnic minority employees and employees with a disability.

Ethnicity pay gap reporting will adopt the harmonised standards produced by the Government Statistical Service (GSS), with data aggregated based on Office of National Statistics (ONS) guidance. ONS guidance recognises five separate categories for aggregation purposes.

All employers will need to report, as a minimum, a binary comparison between the “White (and White Other)” category and an aggregation of all other categories.

Alongside this, if the employer has at least a minimum number of employees in each of the five categories, it will need to report a comparison of the “White (and White Other)” category against each other category. The Government has suggested a minimum threshold of 10, but it intends to consider this further to ensure the final threshold protects employee anonymity.

Disability pay gap reporting will be based on self-identification using the Equality Act 2010 definition of “disability” (i.e. a physical or mental impairment that has a substantial and long-term negative effect on a person’s ability to do normal day-to-day activities).

For disability, employers will need to report a binary comparison between employees with and employees without a disability.

For both ethnicity and disability reporting, employers will need to report a pay gap only if there are a minimum number of persons in the relevant reporting group (e.g. of a particular ethnicity, or with a disability, within a specific pay quarter). Again, the Government has suggested a minimum threshold of 10 persons.

The Government has said it will continue to develop legislation to introduce the new reporting requirements and continue to engage with stakeholders on appropriate guidance.

In anticipation of the new regime, the Government has published indicative draft clauses for the new Equality (Race and Disability) Bill that would embody the new regime.

Read the Government’s response to its consultation, and its proposed next steps, on mandatory ethnicity and disability pay gap reporting

Read the indicative draft legislation for a mandatory ethnicity and disability pay gap reporting