A construction company has workers' compensation insurance with a rate of $8.50 per $100 of payroll for carpenters. If the quarterly payroll for carpenters is $125,000, what is the workers' compensation premium?
Correct Answer
D) $10,625
Workers' compensation premium = (Payroll ÷ $100) × Rate. ($125,000 ÷ $100) × $8.50 = 1,250 × $8.50 = $10,625.
Why This Is the Correct Answer
Option D is correct because workers' compensation premiums are calculated by dividing the payroll by $100, then multiplying by the rate per $100. The calculation is: ($125,000 ÷ $100) × $8.50 = 1,250 × $8.50 = $10,625. This standard formula ensures premiums are proportional to payroll exposure and follows insurance industry conventions for workers' compensation rating.
Why the Other Options Are Wrong
Option A: $8,500
Option A ($8,500) incorrectly applies a rate of $6.80 per $100 of payroll instead of the given $8.50 rate. This error likely comes from miscalculating the rate or confusing it with a different classification rate.
Option B: $15,625
Option B ($15,625) incorrectly multiplies the rate by the full payroll amount ($125,000 × $8.50 ÷ 100 = $10,625, but this shows $125,000 × $12.50 ÷ 100). This suggests confusion about the rate calculation method.
Option C: $12,750
Option C ($12,750) applies an incorrect rate of $10.20 per $100 of payroll instead of the stated $8.50. This error might result from using a rate for a different trade classification or miscalculating the given rate.
Memory Technique
Remember 'Payroll Per Hundred Times Rate' - PPH×R. Always divide payroll by 100 first, then multiply by the rate per $100. Think: 'Per hundred means divide by hundred first!'
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