Pay transparency is expanding - employers need to be ready

As the government moves ahead with ethnicity and disability pay gap reporting, organisations face both a challenge and an opportunity to improve fairness, build trust and strengthen productivity and performance, as Charles Cotton, senior reward and performance adviser at the CIPD explains.

The government has confirmed plans for ethnicity and disability pay gap reporting for large employers, as part of wider efforts to tackle persistent workplace inequalities.

Evidence highlights that employees from ethnic minority backgrounds and disabled people continue to experience poorer outcomes in pay, career progression, and pensions. The planned requirements, for British organisations with 250 or more employees, aim to improve transparency and drive more meaningful action in response.

The new rules build on the gender pay gap reporting framework introduced in 2017. That legislation increased awareness of pay disparities and prompted many large employers to review their reward, recruitment, and promotion practices. The new ethnicity and disability requirements will follow a similar approach to gender pay reporting but also require employers to publish workforce composition data and highlight rates of non-disclosure.

However, ethnicity and disability reporting presents additional challenges. Smaller workforce populations, low disclosure rates and sensitivities around data collection mean that results can be harder to both capture and interpret. This places greater emphasis on the quality of data collected and on employers’ abilities to analyse and act on it with care.

And, as with gender pay gap reporting, it presents an opportunity for the organisation to gain deeper insight into workforce composition and pay structures.

Analysing differences across groups can help identify underlying issues, such as under-representation in senior roles, occupational segregation, or unequal access to development opportunities. These insights can help organisations take more targeted and effective action.

The case for change

When pay systems fairly reward skills, contribution, and performance, regardless of ethnicity, disability or other characteristics, employee engagement and trust are likely to increase. In turn, this can improve employee productivity, retention, and creativity.

Proactively identifying and addressing gaps also helps mitigate legal and reputational risks by highlighting potential discrimination issues before they escalate.

Greater transparency also signals a commitment to fairness and inclusion, which can enhance the employer brand and build trust with existing and potential employees.

In competitive labour markets, this can improve recruitment and retention, particularly among underrepresented groups. It may also advance relationships with investors and customers, who are placing increasing emphasis on ethical considerations.

However, realising these benefits will depend on employers taking early and deliberate steps to prepare.

How employers should respond

Despite uncertainty around when reporting will start, employers should begin preparing for it now. A structured and proactive approach will be key.

Employers should start by auditing their existing workforce data, where many are likely to identify gaps, particularly due to low rates of ethnicity and disability disclosure.

Improving data quality should be a priority, supported by clear communication to employees about why the information is being collected and how it will be used and protected.

Alongside this, organisations should review whether their HR systems are equipped to capture and analyse the required data effectively. This includes ensuring consistency in how ethnicity categories are recorded and considering running internal pay gap analyses ahead of any formal requirements.

Building capability within HR teams and among line managers to interpret findings and take appropriate action will also be essential. Employers may also need to set aside budget to address any legacy issues uncovered during this process.

In addition to these practical steps, strong governance and stakeholder engagement will be critical.

Senior leaders will need to take visible ownership of the agenda, while engaging employee networks, line managers and employee representatives to build trust. Embedding accountability at all levels will help ensure that reporting leads to meaningful improvements rather than box-ticking compliance.

While the direction of travel is clear, there are still important challenges to address.

Variability in disclosure rates, limited HR data capability, and sensitivities around sharing personal information all add complexity. There is also concern that introducing requirements too quickly could result in poor-quality reporting and missed opportunities for real progress, particularly at a time when employers are facing cost pressures and wider regulatory change.

That is why in our response to government, the CIPD recommended a phased introduction would help organisations build capability and ensure reporting delivers real value.

Done well, ethnicity and disability pay gap reporting has the potential to drive greater fairness, improve decision-making, and support increased productivity across organisations.