What is disability pay gap reporting?

The government has committed to extending the UK’s framework for gender pay gap reporting by employers to other protected characteristics, including disability. The policy seeks to improve transparency and equality among disabled and non-disabled employees – but implementation could be challenging.

Disability pay gap reporting would require UK employers that have more than 250 members of staff to publish annual declarations of the percentage difference in average hourly pay between disabled and non-disabled employees in their organisation. This mirrors the framework for gender pay gap reporting by large employers that is already in place.

The policy, which was announced in the King’s Speech in July 2024, is motivated by evidence of a sizeable and persistent disability pay gap nationally. A core challenge of implementation of the policy will lie in measuring employee disability accurately and consistently within and across organisations.

What is disability pay gap reporting?

Legislation on gender pay gap transparency, which was introduced in 2017, requires large employers in Britain to publish annual declarations of the percentage difference in the average hourly earnings between men and women. The framework has attracted significant media attention, including articles ‘naming and shaming’ employers with the largest gender pay gaps.

Despite being of a similar magnitude nationally as the gender pay gap, the disability pay gap has to date received far less attention from researchers, employers and policy-makers.

In 2021, the disability pay gap in the UK – based on median hourly pay or hourly pay at the middle of the pay distribution – was 13.8%, according to the latest estimates from the Office for National Statistics (ONS).

Unlike the national gender pay gap, this gap in earnings between disabled and non-disabled employees has shown no sign of diminishing. There has even been a slight growth between 2014 and 2021 (see Figure 1).

Figure 1: UK disability pay gap, 2014-21

Source: ONS

The disability pay gap is also of increasing importance due to the rising prevalence of disability among the UK workforce, up by around 50% between 2013 and 2022. This is calculated as the percentage of those in employment defined as disabled according to UK equality legislation, which refers to a long-term health problem that limits activity.

Indeed, around 17% of workers are disabled, according to the most recent estimates. Yet to date, policy attention has focused on improving employment rates among disabled people rather than disability-related gaps in outcomes at work, including pay.

The new government will bring a change in this regard, with a commitment to introducing disability pay gap reporting. While the detailed requirements have not been confirmed, the implication is that large employers will need to publish the organisational disability pay gap relating to their own workforce.

Enacting such a change would make the UK a leader in terms of disability pay gap transparency – and the extension has the potential to reduce the disability pay gap. There is initial evidence of the positive impact of greater transparency on the gender pay gap (Blundell et al, 2022; Jones et al, 2022).

What can we learn from the national disability pay gap?

Economic analysis at the national level has focused on understanding the causes of the UK disability pay gap. In particular, studies use survey data to separate the influence of disability from other personal and job characteristics that are correlated with disability, for example, age and educational attainment (Longhi et al, 2012; Jones et al, 2006).

This research has led to a focus on the adjusted rather than the raw disability pay gap as a more accurate measure of disability-related wage inequality, where the former compares the pay gap among more comparable disabled and non-disabled individuals. This is found to reduce the disability pay gap by about 50%.

Nevertheless, there is widespread recognition that the adjusted pay gap is an imperfect measure of wage discrimination against disabled people since it includes the influence of any unobserved factors, such as employee preferences. Researchers are unable to account for these factors.

For this reason, the drivers of the raw organisational disability pay gaps – which would be required to be published – need to be carefully interpreted both within organisations and when making comparisons between them.

In this respect, a key advantage of organisational reporting is encouraging employers to develop a better understanding of the drivers of disability pay gaps, as well as tracking and evaluating progress in closing them over time.

It is this element that has the potential to foster long-term sustainable organisational change and identify effective equality practice that can be shared across organisations.

Even at a national level, our understanding of the role of employers on the disability pay gap is limited. Studies based on linked employee-employer data have identified a significant within-firm adjusted disability pay gap (Jones and Latreille, 2010). This refers to differences in average earnings between otherwise comparable disabled and non-disabled employees within the same employer. This means that the national disability pay gap is not purely a consequence of disabled employees working in different organisations compared with non-disabled employees.

While critical to informing policy, particularly identifying inequality within firms, this evidence is dated, and our understanding is restricted by the absence of contemporary data.

What are the challenges in organisational disability pay gap reporting?

The proposal is not without its practical challenges. These are in addition to existing concerns about the accuracy of employer gender pay gap reporting data.

At present, employer disability pay transparency is largely voluntary and therefore undertaken by a small number of organisations. Such firms typically collect data using methods and definitions that are not consistent across organisations or with national measures aligned to legislation.

Further, disability is complex to measure, particularly within organisations where there may be barriers to employee disclosure alongside limited knowledge and expertise in relation to disability data collection.

Without comparable data collection and definitions of disability across organisations, it will be very difficult to compare organisations, limiting transparency. In fact, measuring disability accurately within organisations is a pre-requisite for informative organisational disability pay gap reporting.

Doing so has further benefits, particularly in relation to employers’ ability to meet their obligations under existing equality legislation, including that employees can request reasonable adjustments to prevent disadvantage at work.

Current best practice for measuring disability nationally can be illustrated by the UK Labour Force Survey. In responding to this household survey, people can indicate (confidentially) if they have a long-term health problem and whether it limits their daily activity. The Equality Act disability measure is derived from this information.

Such questions do not require an individual to identify as disabled or for anyone else to be aware of their health problem. This provides a critical reference for the design of organisational reporting.

There are several further challenges in calculating an organisational-level pay gap measures for disability, not least in terms of reliability based on sample size. Based on the national estimates, we would expect about 44 disabled employees in an organisation with 250 employees. But this assumes an equal distribution of disabled workers across organisations.

Further, since disability is dynamic – with evidence of both movements into and out of disability in national survey data – disability also needs to be measured regularly rather than, for example, simply at the time of an individual’s appointment.

There has also been concern about the unintended consequences of pay gap reporting on the disability employment gap, in particular the possibility that employers could become more reluctant to hire disabled people, especially into entry-level jobs.

In this respect, legislation in relation to disability needs to include a measure of workforce disability prevalence as a way of assessing disability-related gaps in workforce composition that sets pay gaps in context.

The availability of consistent data on organisational disability prevalence in the workforce is also key to understanding how disabled people are distributed across employers. This is something about which we currently know virtually nothing.

There has been less attention on the wider benefits of organisational monitoring of disability, including that employers will be able to use these measures within their organisations to monitor a much wider range of outcomes, potentially including promotion and retention.

Further, the possible benefits of such monitoring are likely to become increasingly important given the rising prevalence of disability within the workforce.

Recommendations

The same arguments for pay transparency can be applied to disability as for gender. Despite the existing framework for collecting and publishing information in relation to gender, the practical challenges in implementation to disability remain significant.

Collecting consistent organisational information on disability among the workforce is a pre-requisite for meaningful pay gap reporting. Policy-makers will therefore need to build on the knowledge developed from disability measurement nationally to ensure the consistent adoption of a meaningful measure of disability. This is critical to making comparisons across organisations and therefore realising the potential benefits of transparency.