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The Labour Codes and the Indian oil Industry: The Act, The Fact and the Impact


Manpower trends in Indian Oil Industry : An outlook

“There are decades in which nothing happens for days

And then there are days in which decades happen.”

The Indian oil industry has been the benefactor of the country’s development since independence. The impact continues today, as India presents itself as the third largest consumer of energy in the globe. As one of the eight core industries in the country, the dynamics of the oil and gas industry has been one of the major influencers of other cogs of Indian economy.

As of December 01, 2020, India stood tall as the second largest refiner of Asia with oil refining capacity at 259.3 million metric tonnes. Private companies own about 35.29% of the total refining capacity in FY20.Again with increase in crude oil imports, and the predicted increase in Natural gas Consumption, the industry does not move towards a slump in the near future. The Indian Oil and gas industry strives to reach a parlance with the global scenario with leveraged use of technologies and competitive business structures.

With technology and other forces, comes a regulation of manpower in the Oil and Gas industry. As per the report shared by ET Energy world, Permanent workforce employed by India’s state-run oil and gas companies has declined 13 per cent in the past 15 years through 2017 to 110,000, an analysis of oil ministry’s data on manpower strength of the sector’s Public Sector Undertakings (PSUs) shows.

Also, taking into account contractual workforce too, the overall employee strength across 12 PSUs remained stagnant between 2002 and 2015, growing a mere 0.30 per cent. Even then, the manpower employed in the “Foreign Experts/Expatriates/On-Contract” category rose over three times to 24,140 in 2014-15 from a mere 7,213 in 2002.

Being a core industry, the approach to different technical processes in the Indian oil sector along with the legal compliance frameworks is well regulated and forms an integral part of the corporate culture.  Hence it would be wrong to state the diversity of labour laws governing the state of well being and prolonged welfare of the labour class misses to impact any class of workers in the Indian oil industry.

The labour laws with complete inclusion of the acts, rules and by laws, implied or expressed, have been complied by the different units of the oil industry. With much practices in place, it brings us to the analysis of the impact of the upcoming labour codes on the Oil industry, particularly in terms of the changes they bring.

The new decade brings with a sea change in the labor law scenario. With the merger of 29 labour laws in to 4 labour codes, this has brought in a more simplistic approach in doing business. The coverage of unorganised sector has broadened and employment avenues have been positively impacted. Through the following analysis, the impact of these codes on a systematic, highly compliant and organized oil industry is analysed.

Changes in Labour Codes and Their Impact on the Oil Industry

Presented here are some major changes that labour codes have introduced and how its impact is laid out on the Oil industry.

Code of wages:

The code on wages is a sub Sumption of 4 wage acts and would impact the il industry in the following manner.

Minimum Wages Related Changes

The minimum wages act is not applicable to the Oil industry. However in the regular nature of the business oil companies usually have the construction of roads, bridges and buildings under their perview. This scheduled industry has the maximum minimum wages allocated for it by the government.

However the new wage code forgoes the concept of scheduled industry and the minimum wages shall be regulated into 4 categories-unskilled, semi-skilled, skilled and highly skilled added with geographical area specific provisions. Again the National Floor Wage has been empowered to have a binding effect,according to which different states shall have different national minimum wages. The same shall be revised by the appropriate government, which in case of Indian oil industry is the Central government, in an interval not exceeding five years.

Henceforth, with the code taking effect there shall be a minimum wage applicable to the oil Industry. The same wage rate shall be differently applicable to different states/regions and have to be accordingly adhered to.

Changes in line with Payment of wages

i. The ceiling limit of Rs 24,000 as per the Payment of wages Act, 1936 has been removed following its subsuming into the new labor codes. According to the Payment of Wages Act, 1936 the amount of authorized deductions shall not exceed 50% of the total earnings.

Previously since the ceiling of the payment of the wages act was at Rs 24,000, nearly all employees of the oil industry were barred from its purview and the deductions could have an adverse value over the earnings, affecting the ‘take home’ pay.   Now with the revoking of the ceiling, the Act becomes applicable to all employees of the Oil industry thereby ensuring a legally mandated payment value to employees across all rungs. This is also inclusive of the deductions made towards payment to any cooperative society (accounting which according to the Payment of Wages Act, 1936 could go upto 75% of total earnings).

Therefore the benefits and compensation structure has to be restructured in the oil industry, where major deductions like PF, income tax, loans and advances have all to be accounted in a ceiling of 50% only. Further with the uniformity in the definition of wages, the BENCOMP(benefits and Compensation) Structure has to be relooked upon considering the following from the ‘wages’ definition:

  1. Fines and instalments not to exceed 3%
  2. Inclusion of  Basic, DA and RA
  3. Exclusion of Bonus, HRA, PF, Over Time, Commissions(like the conveyance allowance, PRP, PLI),gratuity, retrenchment compensation, etc.
  4. Total Deductions, excluding gratuity, retrenchment compensation and retirement benefits, not to exceed 50% of remuneration

Entertaining the above the wage value shall be arrived at which shall be taken for calculating ESI, PF, Gratuity, Bonus, etc.

ii. Again the Payment of Wages Act, 1936 kept the provision of payment of Wages for a month by the 7th and 10th of the next month depending on the strength(1000 or above). The new code curbs the practice and has only one date, i.e., the 7th of next month by which wage for the previous month has to be paid.

Ideally in marketing, pipelines and R&D based locations the eligible manpower strength does not exceed 1000. However oil companies with large setups like refineries need to revisit the Payment dates to 7th.

Changes in line with the Payment of Bonus

The ceiling for Payment of Bonus stood at Rs 21,000 as per the Act.  The universal cap has been removed with the advent of Code. The cap shall now be decided by the appropriate government, in case of oil industry that being the Central Government. Once the new ceiling is fixated by the central government, the Oil Industry will need to revalidate the scope – for contract labours and its employees alike.

Further an act of sexual harassment has been added to the list of misconducts against which an employee shall be held disqualified for receipt of bonus if convicted for an action involving a way of sexual harassment. 

Again, the ultimate onus of payment of Bonus to the contract labour rested with the Principal employer as per the Payment of Bonus Act, 1965, however the contradicting judgements by certain high courts kept it as a grey area. The new code has clearly brought out this provision. Hence Oil Companies need to, as a preventive measure itself, ensure timely payment of Bonus to the contract labour by the contractors. Although newly enforced by the court, the practice has already been prevalent in all major CPSEs.

The welcome Switch from Inspectors to Facilitators

The inspectors as per the Wage Acts have now been introduced as facilitators. The ICFs (Inspectors-Cum-Facilitator), unlike the inspector, shall be assisting the employer achieve better legal compliance. This is a welcome change for a diversely spread oil industry where many Location Heads would be benefitted with the right compliance advise, rather than a penalty for non-compliance.

Further e-inspections are to be introduced making the process more efficient and transparent. The necessary records, registers, licenses and returns could be uploaded online and verified directly.

The government has embraced outsourcing mechanism through the current labour codes where third party audit and certification (more detailed in section 37 of the OSHWC code) could be adopted by it in randomised manner and such reports be submitted to the employer and the ICFs. Oil companies to be ready to embrace this new trend.

Scope for Improvement

The penalties for any violation has been increased for ALL the labor odes. However, the scope of improvement has also been enhanced for all the employers.

No penalty shall be imposed on first time offenders, only for certain violations, and only for repeated offenders there shall be a penalty and that too if the offense has been committed more than once in a period of 5 years.

This, added with the ICFs, shall be a welcome provision by the Act to make the operating locations in the Oil Industry better compliant.

Settlement Period

The new code brings in the provision that in case of resignation/dismissal/retrenchment-the wages have to be paid within two working days. The oil companies need to revalidate the payment release mechanism to avoid any legal non-compliance in these lines. The dues here include non statutory payments like earned leave(which is now paid alongwith monthly salary release date) .

Code On Occupational Safety, Health and Working Conditions

The code on Occupational Safety, Health and Working Conditions is a subsumption of 15 Labour Acts. Presented here is the impact study of the same on the Indian Oil and gas industry

One Establishment, one Registration

The Code introduces a single registration for the establishment , unlike to the multiple registrations that the organisations had to do prior to the code. With the introduction of this centralized database this eases the efforts of different units of the oil companies, where previously it was a long and time prone process.

Empowering Women

While previously Factories Act, 1948 did not allow employment of women before 6 am and after 7 pm barring certain exemptions, the current code legalises concepts like ‘consent’ where women employees could be allowed to work in such timings. Again the odd work hours would be complimented with adequate safety and conveyance facilities.

Again, women employees can now be engaged in dangerous operations, unlike the restriction in the factories Act, 1948. The employer, in this case has to provide the necessary safeguard measures.

The Central Oil PSEs, according to the MOPNG statistics as on 31.03.2020, alone have a strength of 8454 women across different grades and including contract workforce. Hence such a change would be facilitative of managing the manpower in the industry for more assignments and allowing women to be more strategically involved in the work processes.

Factories redefined

Another welcome change for the oil industry, the definition of factory has been revamped. As per the new code, a unit shall be considered as a factory if more than 20 workers are engaged in manufacturing with the aid of power.

Previously this ceiling was 10 workers(all contract labour and employees included except the occupier) or more, due to which many of the small and less-manned units of the oil industry, particularly in the Marketing function like AFSs and depots had to also bear the legal burden of filing returns and reporting compliances frequently for a very trivial strength.

Scope for engaging Contract Labour and ISMW broadened

Previously the licensing and registration of an establishment was to be done if it engaged more than 20 contract workers and 5 migrant labours as per the respective provisions.

The new code again brings in a sigh of relief for the sparsely manned units in the oil industry by increasing this threshold ceiling to 50 for contract workers and 10 for Inter-state Migrant workmen thereby nullifying the need for seeking license from contractors and filing returns in relation to contract labour in the online return filing.

Free Annual Health Checkup

The factories, Act, 1948 mandated health check up for the workers. The new code ensures annual health checkup of all employees, the cost of which is to be borne by the employer.

Annual Leave with wage Period Reduced

Worker is eligible for earned leave at a rate of 1 leave for every 20 days worked in the current year if he has worked for minimum 180 days in the previous year. The ceiling has been reduced to 180 days from 240 days as was mentioned in the Factories Act, 1948. This leave cycle as per the new amendment has to be redrafted by the oil companies with the advent of the new code.

A canteen for a 100

In majority of the locations of the Oil industry , particularly in marketing , R&D and in the pipelines functions, the number of workers (inclusive of employees and contract workmen)  was not as high as 250, thereby relaxing them from having a canteen established mandatorily. Currently as per the new code, factories with 100 or more workers have to mandatorily provide a canteen facility at the unit. This would need all such locations to start preparing the administrative setup for establishing canteen facilities.

Similarly creche has to be provided with units having 50 or more employees.

Licensing for Contractors

As per the new Codes, the contractors can obtain two kinds of licenses -job specific license, which is more in line with the current licensing and common license for operating in multiple states.

The second one has also a relevant impact on the contractors in oil industry where contractors with operation in multiple states or multiple units in the same state can seek a common licence and intimate the same to the business unit and the local CL authority and perform operation with ease. The contractor based on his common license can allocate contract labour in different locations/states in any proportion upto the maximum number for which his license is obtained.

Also the contractor must obtain the license before engaging the contract labour. This creates an unwritten onus on the oil industry managers to invite for tenders involving contract labour at least 6 months in advanceand place the work order by giving the contractor sufficient time to obtain the licence before start of his work, specifically for job specific contract license holders, where all these legal checks can be obtained.

Transition of OT from Matter of right to element of consent

Earlier the employer could allocate OT work to the employees in the roster, moreso as a matter of right. With the beneficial turn taken by the code, allocation of overtime work would require the consent of the worker,whether verbal or written.

Managers in the oil and gas units need to plan their activity based on the worker’s consent.

The IR Code

 The IR code is the subsumption of three acts. The new code brings in the following changes impacting the Oil and gas industry:

Fixed Term Employment Introduced

The IR code introduces the flexibility to the employers to hire people on fixed term employment for a specific duration and a written contract. An unversed practice previously, this brings in the scope for oil industry employers to go for short-termskill based recruitments.

With the competitive trends in the oil industry and the steady march towards green energy the Oil Industry, globally, is going to face a dearth for skilled man power with technical expertise in adopting the new business models, introducing and implementing new technologies and executing strategies. Fixed term employment appears as a panacea in the Indian oil industry in such a scenario. Introducing FTEs could be advantageous to the oil companies, particularly in the administrative setups, as this would facilitate:

  1. Skill Based time bound hiring
  2. Non payment of retrenchment benefits on separation
  3. Better cost management
  4. Payment of Gratuity only on pro rata basis.
  5. Negotiating Union/Council Introduced

The bargaining power of the unions in the Indian oil industry with majority of members is being empowered by the IR code with the introduction of mandatory recognition of the unions or setting up of a negotiating council with unions having representative strength of more than 20%.

The recognition of unions is a delayed although a welcome move. It is also important to note that Indian Oil Companies have been having the practice of a bargaining agent /council in line with the code of Discipline, 1958 to which this provision of the IR code is a worthy successor.

Saying bye to the PUS privilege

Oil companies of india enjoyed the special recognition in the Industrial Dispute Act , 1947 as the Public Utility Services which differentiated the approach to strikes and lockouts in such establishments.

The current IR code removes the concept of Public Utility Services and makes the provisions for strikes and lockouts expanded to all industrial establishments. Strike/lockout could be carried out after 14 days of notice and cannot be continued beyond 60 days, instead of the previous higher limit of 42 days.

Worker’s Reskilling Fund

The IR Code introduces provisions for re-skilling of workers for the first time for those workers who have been laid-off so that they are able to secure employment again. Such fund would constitute:

  • The contribution of the employer of an industrial establishment of an amount equal to fifteen days wages last drawn by the worker immediately before the retrenchment, or such other number of days as may be notified by the Central Government, for every retrenched worker in the case of retrenchment only; and
  • The contribution from such other sources as may be prescribed by the appropriate Government.

The fund shall be utilised by crediting fifteen days wages last drawn by the retrenched worker to his account, within forty-five days of retrenchment in the manner as may be prescribed.

The regulation of this fund and more clarity on the role of the employer would dawn upon the laying down of the rules. But this welfare provision shall also hit the oil industry, like all others.

The Social Security Code

This code is the subsumption of 9 acts and the following ipacts on the oil industry would be set by the new code.

ESI Act and EC Act: New Lines Drawn

Previously ESI was applicable to notified areas wherever it was implemented, thereby being an integral element of the wage structure in such areas and in other cases the employees compensation Act was applicable. 

However, as per the Social Security Code ESI is applicable throughout all establishments. Wherever the ceiling of wages exceeds Rs 21,000 there employee is covered under coverage of Employees Compensation provisions. The ESI act shall be applicable to all the establishments of Oil companies even if one worker is engaged there.

Limitation Period’s extension to PF

The ESI Act had the mention of limitation period under which the inspector could not ask an employer for display of records and returns ranging within the period of five years from the date of inspection, but not beyond that.

The new Social Security Code has established the extension of Limitation period to PF Act as well for 5 years only, ensuring more productive record management by theoil companies. Again with subsequent advent to digital record keeping such manual records would be obsolete in a few years ensuring a paperless record management.

Compensation for commuting to work and vice versa

The scope of ‘arising out of and in course of employment’ has been broadened as per the new code where the accident arising during  commuting to work and vice versa shall also be liable for payment. Whereas oil companies are already having a robust compensation structure for such misfortunes, the code has brought in a welcome change in this scenario.

Conclusion

At the cost of repetition, it is noteworthy to mention that the labor management scenario for the Indian Oil Companies is very organized and rule bound. Majority of the changes proposed by the law are already in place and practice. While the labour laws take a strive towards coverage of a larger labour base, previously uncovered in the country, the oil companies need to responsibly revisit the HR parameters of compensation, leave and productivity management to ensure higher compliance and unmeddled efficiency.

     

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