UK Employment Law Coffee Break: Developments on mandatory pay reporting, 'Get Britain working' and tribunal awards, DSARs, and pensions spotlight for March

New consultation on mandatory ethnicity and disability pay gap reporting 

As part of its proposed draft Equality (Race and Disability) Bill, the government has opened a consultation to seek views on how to implement mandatory ethnicity and disability pay gap reporting for large employers (more than 250 employees) in Great Britain, with changes likely to be implemented in 2026. At present, employers with more than 250 employees are only under a statutory duty to report on their gender pay gaps, although the previous government did issue guidance on ethnicity pay gap reporting on a voluntary basis.

To minimise additional burdens on businesses, the government is aiming to use a similar framework for ethnicity and disability reporting to that already in place for gender pay gap reporting. For the relevant protected characteristic, employers would report on mean and medial differences in average hourly pay and bonus pay and the percentage of employees in four equally sized groups ranked from highest to lowest hourly pay and the percentage of employees receiving bonus pay for the relevant protected characteristic. A "snapshot" date of 5 April and reporting date of 4 April would likewise be used, with online reporting mirroring that via the gender pay gap reporting service.

To give context to an employer's ethnicity and disability pay gap figures, the government is also proposing to make it mandatory for employers to report on the overall breakdown of their workforce by ethnicity and disability and the percentage of employees who did not disclose their personal data on ethnicity and disability. This seeks to overcome disparities which may otherwise arise where there are low self-declaration rates from their employees on these characteristics or where an employer may have recently increased the number of ethnic minority or disabled employees, which could contribute to larger pay gaps if people from these groups are joining at entry level. Sharing information about the proportion of ethnic minority or disabled people in an employer's workforce can help to build a clearer picture about an employer's overall commitment to inclusiveness.

Data collection and analysis

The consultation recognises the distinct considerations that arise when collecting and analysing data on ethnicity and disability, compared to gender. The government is seeking views on the best approach.

The government proposes that for ethnicity, employees will be asked to report their own ethnicity with an opt out of "prefer not to say"; ethnicity data will be collected using the detailed ethnicity classifications in the Government Statistical Service ethnicity harmonised standard that was issued for the 2021 census. While employers will be encouraged to try to show pay gap measures for as many ethnic groups as they can, to protect the privacy of employees and help produce statistically robust data, it is proposed that there should be a minimum of 10 employees in any ethnic group that is analysed. It may be that some ethnic groups can be added together for this purpose in line with guidance on ethnicity data from the Office of National Statistics. The government recognises however that "binary reporting" (such as comparing white British employees with ethnic minority employees) may be the only available comparison; where this is so, employers should keep this under review and aim towards reporting on more ethnic groups in the future. 

For disability, the government again proposes that employees will be asked to report their own disability, using the Equality Act 2010 definition of "disability" for this purpose. In contrast to ethnicity, the government is proposing taking a binary approach to measuring the disability pay gap by comparing the pay of disabled employees with non-disabled employees given the significant data protection risks and complexities that could arise if analysing by impairment type. Again, to protect the privacy of employees (in line with GDPR) and to ensure data is statistically robust, it is proposed that there should be a minimum of 10 employees in each group being compared in terms of pay.

The consultation will run for 12 weeks, closing on 10 June 2025.

Next steps

The consultation paper is helpful in highlighting the approach the government is looking to adopt in introducing mandatory ethnicity and disability pay reporting. We anticipate that the proposals will not come into force until 2026 and there is then likely to be transition period for employers to prepare for the new legal obligations.

However, while the government has sought to mitigate in its proposals the complexities that can arise when collating and analysing data on these protected characteristics, employers should start considering carefully how they will manage the new statutory requirements from a legal and practical perspective and the inherent risks that it will inevitably give rise to.

The usefulness of the new reporting obligations for employers in understanding any inherent inequalities existing within their workforce will naturally be dependent on the volume and accuracy of data collected; it will also be important to understand the limitations of the data available and the impact this has on the reporting required. For example, the binary approach to disability pay reporting currently suggested may lead to distortions, given the inevitably wide scope of conditions falling within the Equality Act 2010 definition of disability (for example, individuals with a range of physical and mental health conditions may meet the definition, with some conditions automatically deemed to be disabilities, as well as those who are neurodivergent) and the different impacts different disabilities have on day-to-day work. Employers will need to consider carefully how this is approached with employees, ensuring that appropriate safeguards are in place and that employees understand the new pay reporting obligations.  

The government's hope is that introducing mandatory ethnicity and disability pay gap reporting will "provide the same transparency and impetus for positive change for people from different ethnic groups and disabled people" as with gender pay reporting and while the new reporting duties will only apply to those with 250 plus employees, this is an area which all employers should have on their radar. The consultation document is "the beginning of the process" and that the government will be engaging further with interested groups, as well as launching a separate call for evidence seeking views on making the right to make equal pay effective for ethnic minority and disabled people and other areas of equality law. 

Reforming benefits and support to 'Get Britain working'

The government has published, this week, a green paper - "Reforming Benefits and Support to Get Britain Working", including proposals to support employers in engaging those who are disabled or struggling with ill health conditions – and now seeks views on the proposals raised.

Alongside this, the government has published a report from the first phase of an independent review being conducted on the role of employers in tackling health-based economic inactivity and promoting healthy and inclusive workplaces. The press release accompanying the report highlights that nearly one in four people out of work due to ill health are under 35 and young people with mental health conditions are nearly five times more likely to be economically inactive compared to others in their age group.

In total there are 8.7 million people in the UK with a work-limiting health condition, up by 2.5 million over the last decade – this includes 1.2 million 16 to 34 year olds and 900,000 50 to 64 year olds. The growth in the number who are becoming economically inactive for health reasons is nearly 10 times the growth of the working age population. The report highlights that those who are out of work for less than a year are five times more likely to return to work compared to those who are out of work longer and that the potential economic benefit of better prevention, retention and rapid rehabilitation in tackling sickness absence and ill-health related economic inactivity could be worth £150 billion a year to the economy. This is against the backdrop of a "spiralling benefits bill, forecast to reach £70 billion a year of spending on health and disability benefits for working age people by the end of the decade, or more than £1 billion a week".

The coming months will now see written submissions and face-to-face engagements with businesses and stakeholders to gather evidence which will be used to develop recommendations anticipated to be published in autumn 2025.  

Increased tribunal awards announced from April 2025

The new tribunal awards and statutory payments have been announced where an employee's effective date of termination falls on or after 6 April 2025. including:

• a statutory redundancy payment will increase from £700 to £719;
• the maximum compensatory award for unfair dismissal increases from £115,115 to £118,223; and
• the minimum basic award for certain unfair dismissals (including health and safety dismissals) increases from £8,533 to £8,763.

GDPR for HR: Handling data subject access requests 

At our GDPR for HR event, held earlier this month, we discussed a recent landmark case on data subject access requests (DSARs) which provides businesses with a number of valuable learning points and practical guidance for data controllers on how to manage DSAR responses. The case provides a stark reminder that the right of access is treated by the courts as a fundamental right and a gateway to other data rights. Read our Insight.

In general, this case emphasises why data controllers should proceed with caution if deciding to provide nothing in response to a DSAR – rarely will that bring an end to the matter. As in this case, it is more likely to prompt a complaint that the response was incomplete and inadequate, and encourage a more zealous approach by the individual to seek out the information they are looking for.  Although few cases go all the way to court, with the significant time and cost implications being a disincentive for many, cases like this generate greater awareness among individuals of how DSARs can be used to understand how decisions about them have been reached. As such, we expect to see increased reliance upon DSARs and there is no room for "slack in the system" – data controllers are expected to know their obligations and design their systems accordingly.

We have a designated DSAR team focused on helping clients respond to employment-related DSARs. We offer a range of options from ad hoc advice to handling the DSAR from receipt through to completion, as well as bespoke arrangements to meet client needs. In the absence of a robust and compliant strategy, responding to a DSAR can be a tricky, time consuming and costly exercise so please get in touch if you would like to discuss how we can help you to navigate this process.

If you would like to join the GDPR for HR network, please sign up here.

HR pensions spotlight for March: Where next for retirement adequacy?

In January, the Department for Work and Pensions published the results of its most recent review of the automatic enrolment thresholds.

The report confirms that there will be no change to the thresholds for the 2025/2026 tax year. The earnings trigger will remain at £10,000, the lower earnings limit (LEL) at £6,240 and the upper earnings limit (UEL) at £50,270. 

This is important because the thresholds set the scope of automatic enrolment. Employers must offer jobholders (workers who work or ordinarily work in Great Britain, who are aged between 16 and 74, and to whom the employer pays earnings above the LEL) the option of opting into an automatic enrolment scheme with an employer contribution, and must automatically enrol jobholders who are aged between 22 and state pension age and to whom the employer pays earnings above the earnings trigger. As a minimum, contributions are made in relation to qualifying earnings, which are earnings between the LEL and UEL.

One effect of freezing the thresholds for another year will be that pay rises will bring more workers into scope for automatic enrolment. This will be particularly true this year, because the statutory minimum pay rates will increase from 1 April 2025.  

The government is aware of this impact. The guiding principles for the review include having an earnings trigger that brings in "as many people as possible who will benefit from saving", and having an appropriate gap between the LEL and the earnings trigger so that everyone who is automatically enrolled pays contributions on a "meaningful portion" of their income.

The review document also confirms that the target group for automatic enrolment is low to moderate earners and that,  in "the longer term, the government is committed to reviewing the pensions’ landscape and the long-term steps it can take to improve pension outcomes, including the level of savings people need to achieve the retirement they want."

This brings us onto the second effect of the freeze – contributions based on qualifying earnings will remain static rather than rise with any pay increase that takes earnings above the UEL. 

Retirement adequacy is expected to form part of stage two of the government's pensions review. Stage one of that review has focused on reforms to the defined contribution (DC) landscape and to the Local Government Pension Scheme to improve value for members, including by consolidating funds to create arrangements at a scale able to consider investment to support UK growth. Stage two is set to look at further steps to improve pension outcomes and to increase investment in UK markets and infrastructure projects, including an assessment of retirement adequacy.

The final report on stage one is expected this spring. It is possible it will be released alongside the UK chancellor's spring statement next week. We hope that the likely timing of stage two will be confirmed at that point. The question, then, will be what reform stage two of the pensions review might bring.

The previous administration was ready to change the law to reduce the age for being automatically enrolled and to reduce or remove the LEL to support pension saving from the first pound earned. There are also calls for an increase in the minimum contribution rates. Employers should follow developments.  

Employers can already help workers to save by offering contributory schemes to those not eligible for enrolment by law and contribution structures based on either basic pay, their own definition of pensionable earnings or 100% of total earnings, subject to certain conditions. There may be strong business reasons to move to this approach if you are not already doing so, including to attract and retain talent and increase pension saving to support your workers' ability to retire at a mutually convenient time taking into account succession considerations and organisational needs.

Employers might also like to follow developments in relation to collective DC (or CDC) schemes. These provide a "target" benefit to employees. This approach gives certainty to the employer in terms of how much it will need to contribute, while removing the need for employees to take investment decisions and navigate DC retirement choices. At the moment, only single and connected employers can establish this type of scheme. In practice, this means that only larger employers can offer one to their employees. However, the  government has consulted on changing the law to allow the creation of (for example) CDC master trusts, which could provide a way for any employer to offer CDC to their employees. As this proposal also fits with the government's UK growth agenda, we hope to see the response to the consultation in the coming months. It is, though, possible that this change will take a back seat for a while as the government focuses on the Pension Schemes Bill to be published before the parliamentary summer recess.

If you would like to discuss this, or any question relating to automatic enrolment, please contact Claire Rankin, UK pensions partner, or your usual Osborne Clarke contact.