The severance pay law obliges employers to pay severance pay to their employees, of a sum identical to one salary for each year of work. The extent of the obligation increases each year.

The possibility of having to pay large sums for severance pay in the future obliges the employer to create a fund for this purpose, which will enable deductions made to the fund to be recognized – the deposits in the funds are regarded as a recognized expense for the employer for tax purposes at the time of the deposit, even though the money has not yet been paid in practice as compensation to employees.

In addition, the payment dates are flexible and will be influenced by the business’s cash flow and tax considerations. The higher the yield from the fund, the more the profit will finance some of the employer's new obligations for severance pay.