Can We Reduce Medical Allowance in CTC Due to ESI Changes? Seeking Urgent Advice

Dear Seniors, I need advice from you. We have a policy in our organization: if the employee is under the ESI limit, a medical allowance of ₹2400 per annum will be paid. If the employee is not covered under ESI, they will be paid one basic per annum. Accordingly, we have given appointment letters to all the employees. However, as per the new enhanced ESI ceiling, 6 employees are now being covered under ESI. In their CTC, the medical allowance, i.e., one basic, is included. Since the ESI has increased, the medical allowance shall be reduced from one basic to ₹2400. Now, my doubt is, is it possible for us to reduce their medical allowance, which is affecting their CTC? I need your suggestion at the earliest.

Regards,
Ganesh

Dear Ganesh,

Yes, it's possible. You can give them new appointment letters and explain the new ESIC structure to them. Alternatively, you can also provide them with separate letters stating that their medical allowance will be reduced and ESIC will be applicable.

Reducing the amount of medical allowance offered is not fair and will not be maintainable legally. Therefore, until the next revision, you have to maintain the same.

Regards,
Madhu.T.K