Labour has announced its intention to make it compulsory for all larger companies to publish information on their ethnicity and disability pay gaps. The changes are a key part of the government’s ‘Plan to Make Work Pay’ and are included in the draft equality (race and disability) bill.
The introduction of new reporting requirements has been welcomed by British employers, including Aviva and BT, and there is hope that the additional transparency will encourage companies to close any existing pay gaps and improve workplace equality.
In 2023, the disability pay gap in the UK stood at 12.7%, the latest data from the Office for National Statistics (ONS) shows. Meanwhile, non-UK-born Black employees earn 12% less than UK-born white employees. Non-UK-born Asian workers earn 9.7% less.
Can reporting help close the gap?
While many organisations will be familiar with gender pay gap reporting – which is compulsory for all companies with over 250 staff in the UK – ethnicity and disability pay gap reporting are new territory for most.
“Pay gap reporting does not equal pay equality but it’s a simple measure that allows companies to benchmark their performance and it can drive meaningful change,” says Ken Janssens, co-founder and head of social impact at Windō, a platform that provides data on the DEI performance of companies.
Pay gap reporting can drive meaningful change
One business that is already voluntarily reporting its pay gaps for ethnicity, disability, sexual orientation and socioeconomic background, as well as gender, is the publisher Penguin Random House.
Each year it publishes a full report into its pay gaps for under-represented groups. In 2023, its mean ethnicity pay gap was 13.8%, 4.1 percentage points lower than the prior year. However, its disability pay gap increased marginally by 0.7 percentage points to 18.6%.
“Penguin’s pay gap reports have helped shine a spotlight on where our opportunities are, meaning we can take targeted action to address the challenges identified through the reporting,” says Val Garside, Penguin Random House UK’s HR director.
The data collection challenge
The company first started sharing its pay gap data across different demographic groups in 2021 and it faced a number of challenges in doing so.
“Setting up non-anonymised data collection for sensitive data is a complicated process due to strict GDPR requirements,” Garside explains. “It was necessary to bring in our legal team early in the process and involve them in decisions about each step of data collection and storage.”
Unlike information on gender, employers need their employees’ permission to store sensitive data on race and ethnicity, religion, sexual orientation and health and medical conditions.
Because of this challenge, companies often have to rely on incomplete data when calculating these pay gaps.
Tom Heys, pay reporting lead at law firm Lewis Silkin, says: “You’re relying on employees to voluntarily provide that information. Although companies will have 100% completion rates for gender, it will be much less for ethnicity, and lower still for other diversity measures such as disability.”
It’s important to show the positive impact that taking part can have
However, he believes that once the government makes it a legal obligation, employee response rates will rise.
Encouraging employees to self-identify is crucial to getting accurate data, Janssens says, and companies should aim for at least 60% participation, otherwise it risks being unrepresentative.
But he acknowledges some information employers’ will be asking staff to disclose can be quite sensitive. “Companies have to walk this tightrope and build trust,” he adds.
Being clear about how employee information is going to be used and who can view it is important. “Strong internal communications can help colleagues understand the value of inclusivity surveys and their role in identifying key areas to be prioritised in DEI work,” Garside says. “It’s important to show the positive impact that taking part can have in terms of tangible actions and progress.”
Janssens provides an example from JP Morgan, which used its employee data to help inform where to prioritise the installation of gender-neutral bathrooms in its global offices. These methods can “build confidence, and improve adoption”, he adds.
Although some companies may consider introducing incentives to encourage responses from employees, Garside advises against it. She says: “Consent must be freely given to ensure that colleagues don’t feel in any way coerced to provide their data.”
How to measure ethnicity and disability pay gaps
While gender pay gaps provide a relatively clear view of pay differences between men and women, a single ethnicity or disability gap is unlikely to be particularly useful for businesses.
Pay gaps can vary significantly, even within broad ethnicity groups. For example, Chinese and Indian employees had higher earnings compared with white British employees, while Bangladeshi and Pakistani employees earned less, ONS pay gap data for the UK shows. All of these nationalities were previously categorised as Asian or Asian British by the ONS.
Similarly, there are many different experiences of disability. “Someone who is in a wheelchair has a different experience to someone with autism or someone who’s blind,” Heys says. “All of these fit into the category of disabled but the barriers that they impose on you in the workplace are very different.”
Limitations should not be a reason not to undertake the work
Grouping ethnicities or all people with disabilities can “cloud the picture”, Janssens says, and he encourages companies to “dig a little deeper” when measuring these pay gaps.
Doing more granular analysis may be possible but, when dealing with smaller amounts of data, the results can be skewed more easily by, for example, someone leaving the business. “What employers will have to report and the context they put around that will be important,” Heys says.
However, even with fewer data points, Penguin has been able to identify pay gaps. “It still creates a spotlight on the need for action,” Garside says. “While it is critical to be transparent about the limitations of pay gaps reporting based on lower response rates, these limitations should not be a reason not to undertake the work.”
How companies define disability is likely to be heavily discussed during any consultation, Heys adds. “Diabetes is within the legal definition of disability but, although people have to inject and manage their diet, it probably doesn’t affect their chances in the workplace,” he says. “That question is going to be really important and the sooner any consultation can come on this, the better.”
Carefully considering the language used in any employee survey is also important. Penguin sought the advice of the Business Disability Forum, Stonewall and the Social Mobility Commission when designing its surveys.
“The language of inclusivity is constantly evolving. It is critical to ensure the most relevant and up-to-date questions are being asked and colleagues are offered an inclusive range of categories to respond,” Garside says.
The importance of intersectionality
Employers’ pay gaps will also only show a fraction of the broader picture. Only 54.2% of disabled people in the UK are in employment. Companies still have much to do to make their hiring practices more inclusive.
It’s also worth remembering that many employees will fit into multiple categories in any pay gap assessments. “If you’re going to disclose data points for one diverse group, disclose it for all,” Janssens says.
One developing area of pay gap reporting is socioeconomic. Janssens describes this as “the Holy Grail of DEI” because it includes white, straight men – a common criticism of DEI schemes is that they overlook those who are disadvantaged but don’t come from a minority group.
“If you solve socioeconomic equity then, by definition, you will solve it for ethnic minorities, sexuality and disability, because they are disproportionately economically disadvantaged,” Janssens says. “It’s great ethnicity and disability pay gap reporting is coming but sexual orientation and socioeconomic background are just as important.”
