Equal pay is rapidly climbing the corporate agenda and becoming a global priority. Organisations are increasingly prioritising pay equity to meet ESG commitments, enhance employer branding, attract top talent, in addition to complying with the increased legal regulation around pay practices.
The European Union's Pay Transparency Directive has intensified the focus on this issue, compelling organisations to address pay gaps. In the UK, high-profile equal pay claims against major retailers, combined with the UK Government’s proposed legislative changes in this space, have propelled pay equity to the forefront of the corporate agenda.
The UK Government’s plans to extend pay gap reporting to include ethnicity and disability, as well as broaden the scope for equal pay claims, signal a decisive shift towards greater transparency and accountability for employers. But are UK employers ready for change?
Current landscape and proposed changes
Currently, UK employers with 250 or more employees are required to report their gender pay gap data, while ethnicity and disability pay gap reporting remains voluntary.
This is set to change with the introduction of the draft Equality (Race and Disability) Bill. Key proposals include:
- Mandatory ethnicity and disability pay gap reporting: Employers with 250 or more employees will be required to report pay disparities based on these protected characteristics, in addition to gender, fostering greater transparency and encouraging remedial actions.
- Expanded equal pay rights: Equal pay rights will be extended to Black, Asian, and minority ethnic groups, as well as disabled workers, offering additional protections against pay discrimination.
- Increased enforcement: A dedicated regulatory and enforcement unit for equal pay will be established. Employers will be required to publish “equality action plans” to address gender pay gaps, likely to be enforced by this new regulatory body.
Insights from our recent roundtable session
While these changes aim to promote equality, they present challenges for employers.
Deloitte’s Fair Pay team recently hosted a roundtable to discuss the evolving equal pay landscape and discussed a number of challenges and key considerations:
Data protection considerations
Ethnicity and disability data are classified as 'special category data' under data protection laws, requiring employees’ express consent for collection and processing. Employers must approach data processing transparently and in accordance with data protection laws, making sure it is kept anonymous. The risk of individuals becoming identifiable within ethnicity categories is a significant concern, especially in smaller organisations.
Defining disability
How would ‘disability’ be defined for disclosure purposes, would the Equality Act definition be used, would this be on the basis of employee self-certification? How can employers deal with hesitancy of employees to disclose health information which may be due to concerns of being treated less favourably?
Ethnicity categories
What categories of ethnicity should be collected? Standardised ethnicity categories are essential in facilitating effective comparison in ethnicity pay gap reporting. While gender pay gap reporting uses a binary model, ethnicity requires more granular data to identify specific issues. A simple White British vs. non-White British comparison misses the detail for meaningful analysis. The UK government is currently consulting on using the Government Statistical Service’s (GSS) 18 ethnicity categories, however some potential challenges with a larger number of categories include increased risk of statistical volatility and difficulty in identifying clear trends.
Increasing disclosure rates
Some organisations already collect ethnicity and disability data, but disclosure rates tend to be low. Encouraging disclosure is critical for meaningful reporting. Strategies include transparent communication about the importance of data collection; building trust and addressing employee concerns; and integrating data collection into annual processes and onboarding. Even with lower disclosure rates, meaningful insights can still be achieved.
Pay equity analysis
Equal pay audits are commonly carried out in relation to sex, but less so in relation to ethnicity and disability. Employers may consider extending current equal pay analysis to cover these areas in order to identify pay disparities in preparation for pay gap reporting and the extension of the equal pay regime.
Group litigation risk
Expanding the right to bring equal pay claims to disabled employees and ethnic minorities is likely to draw heightened attention to pay equity. This could lead to an increase in group litigation from individuals with these protected characteristics.
Government consultation
The UK Government has been consulting on how to implement mandatory ethnicity and disability pay gap reporting for employers with 250 or more employees. Details of the consultation can be found here.
We have summarised some of the key proposals put forward in the consultation paper:
Proposed framework for mandatory reporting
The government proposes to use the existing framework for gender pay gap reporting as the foundation for mandatory ethnicity and disability pay gap reporting. This approach is intended to minimise the burden on employers by utilising familiar processes and systems.
Contextualising pay gap figures
To provide comprehensive insights into pay disparities, the government proposes mandatory reporting on:
- Workforce breakdown: Employers would report the overall composition of their workforce by both ethnicity and disability.
- Non-disclosure rates: Employers would disclose the percentage of employees who chose not to disclose their ethnicity and disability data.
This contextualised data will be important in interpreting pay gap figures, considering factors such as self-declaration rates and the representation of specific demographic groups across different organisational levels.
Collecting and reporting ethnicity data
The government proposes using the ethnicity classifications outlined in the GSS ethnicity harmonised standard (as used in the 2021 Census) in order to promote consistency for the purpose of data analysis.
Collecting and reporting disability data
For disability reporting, the government proposes adopting the definition of 'disability' outlined in the Equality Act 2010. This ensures alignment with existing legislation and promotes a consistent understanding of disability.
Proactive steps for employers
While the exact date for the new law to come into effect is yet to be confirmed, employers should proactively prepare for these changes. To navigate these changes effectively, employers should consider the following steps:
- Data collection and categorisation: Review current practices and ensure compliance with GDPR principles for collecting and processing sensitive data.
- Equal pay analysis: Conduct comprehensive equal pay audits to identify and address disparities ahead of requirements to disclose.
- Policy and process review: Evaluate and update policies to promote equal pay and align with the evolving legal landscape.
Taking proactive measures now will help employers to mitigate risks and support efforts to close pay gaps.
How we can help
Deloitte’s Fair Pay team can provide expert guidance and support in navigating these proposed complex changes and can support you with conducting equal pay audits to help you identify and analyse pay disparities within your organisation.
Contact us to discuss how we can help you prepare for these important changes and foster a more equitable and inclusive workplace.
Kathryn Dooks, Partner, Deloitte Legal, 020 7303 2894
Amy Douthwaite, Director, Deloitte Legal, 020 7303 3486
Arta Fagan, Associate, Deloitte Legal, 020 7303 5369
Gary Fereday, Director, Deloitte Global Employer Services, 0121 695 5224
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