The Government recently launched a consultation on introducing mandatory ethnicity and disability pay gap reporting for certain employers.
Some of the measures proposed by the Government would mirror the framework already in place for gender pay gap reporting, whilst others would be bespoke to ethnicity and/or disability pay gap reporting. This article discusses both the proposals which should already be familiar to employers from the gender pay reporting regime, and those which, if implemented, would likely involve entirely new considerations.
Measures which would mirror the existing gender pay gap reporting obligations
As with gender pay gap reporting, the obligation to report on ethnicity and disability pay gaps would apply to 'large employers' and 'large public bodies'. These are employers with 250 or more employees. It is also proposed that employers would report on the same six sets of pay gap measures as used for gender pay gap reporting, including differences in average hourly pay and bonus pay.
Under the gender pay gap regulations, large employers in the private and voluntary sectors have a 'snapshot date' of 5 April each year to collect pay data from their employees. They then have to report their pay gap data within 12 months of that date (slightly different dates apply to public bodies in England). To ensure consistency, the Government proposes that the same dates and deadlines be used for ethnicity and disability pay gap reporting. It has also proposed that employers report such data online, in a similar way to the gender pay gap service, and that the Equality and Human Rights Commission, which currently enforces gender pay gap reporting, be empowered to enforce ethnicity and disability pay gap reporting, too.
In addition, the Government is seeking views on whether employers should be required to produce "action plans" for ethnicity and disability pay gap reporting (a similar proposal for gender pay gap "action plans" is currently included in the Employment Rights Bill). Among other things, such action plans would give employers the opportunity to explain the reasons for any pay gaps and the steps they are taking to improve matters.
Measures which would differ from the existing gender pay gap reporting obligations
It is clear that the Government wants to ensure that any ethnicity and/or disability pay gap reporting is fully contextualised and that data can be meaningfully interpreted. As a result, the current proposals would place a new requirement on employers to report: (i) the overall breakdown of their workforce by ethnicity and disability, and (ii) the percentage of employees who did not disclose their ethnicity and/or disability status. In relation to ethnicity pay gap reporting only, the Government is also seeking views on whether large public bodies should report on ethnicity pay difference by grade or salary bands, and/or data relating to recruitment, retention, and progression by ethnicity.
Further, the Government proposes that different methods of data collection and calculation be used for ethnicity and disability pay gap reporting:
- For ethnicity pay gap reporting, the Government believes that the best way for employers to collect ethnicity data is to ask employees to self-report their ethnicity (with an option to opt out of answering). The Government proposes that employers collect this data by using the ethnicity classifications in the Government Statistical Service ethnicity harmonised standard (as was used in the 2021 Census). In terms of calculating ethnicity pay gaps, the Government is keen for employers to show pay gap measures for as many ethnic groups as they can. However, the Government recognises that the privacy of employees needs to be protected and that any data produced should be statistically robust. To that end, and to avoid the risk of individuals being identifiable in small datasets, the Government is proposing that there should be a minimum of ten employees in any ethnic group being analysed, noting that employers might have to combine some ethnic groups in order to meet that threshold. Where an employer has smaller numbers of employees in different ethnic groups, the Government suggests that an employer can report figures for two groups – for example, by comparing White British employees with ethnic minority employees. This is known as 'binary classification' and the consultation sets out various options for how employers can approach this, depending on their circumstances.
- For disability pay gap reporting, the Government proposes to use the definition of 'disability' under the Equality Act 2010 as the basis for identifying disabled employees. It also proposes to make employers responsible for collecting data on disability in accordance with that definition, though employees will not be required by law to identify or disclose their disability status. As with ethnicity pay gap reporting, the Government also proposes a binary approach to disability pay gap calculations, in that employers should compare the pay of disabled employees with non-disabled employees. According to the Government, this approach should help reduce the risk of individuals becoming identifiable and avoid the greater complexity that can arise where employees have multiple impairments. Again, it is proposed that there should be a minimum of ten employees in each group being compared.
Conclusion
Issues of ethnicity and disability pay disparity are clearly important to the Government. In addition to this consultation, the Government anticipates issuing a separate call for views on making the right to equal pay effective for ethnic minorities and disabled people.
In any event, it seems that the collection of ethnicity and disability data could prove a particularly complex and sensitive task for employers. Among other things, employers will need to ensure that they approach their obligations in a way that does not compromise employee privacy or otherwise contravene data protection law. In terms of pay gap reporting specifically, employers will also need to be alive to how the operation of incentives plans can influence bonus gap outcomes and we will be publishing an article on that in due course.
For further guidance on these and any other employment-related matters, please reach out to your usual Mishcon contact or a member of our Employment Team.