A contractor employs 15 workers across multiple job sites. The total annual payroll is $850,000 with a workers' comp rate of 4.1%. If they self-insure with a deposit requirement of 125% of estimated annual premium, what deposit is required?
Correct Answer
C) $43,563
Annual premium = $850,000 × 0.041 = $34,850. Self-insurance deposit = $34,850 × 1.25 = $43,562.50, rounded to $43,563.
Why This Is the Correct Answer
Option C correctly calculates the self-insurance deposit requirement. First, calculate the annual workers' compensation premium: $850,000 × 4.1% = $34,850. Then apply the 125% deposit requirement for self-insurance: $34,850 × 1.25 = $43,562.50, which rounds to $43,563. This follows CSLB requirements for contractors who choose to self-insure rather than purchase traditional workers' compensation insurance.
Why the Other Options Are Wrong
Option A: $48,900
Option A ($48,900) appears to use an incorrect calculation method, possibly applying the wrong percentage rate or adding unnecessary factors. This amount is significantly higher than the correct deposit calculation and doesn't align with the standard formula of annual premium multiplied by 125%.
Option B: $45,250
Option B ($45,250) suggests a calculation error, likely in the premium calculation step or the deposit percentage application. This amount exceeds the correct deposit requirement and may result from using an incorrect workers' compensation rate or deposit multiplier.
Option D: $47,125
Option D ($47,125) represents an overcalculation of the required deposit. This error likely stems from applying an incorrect percentage rate during either the premium calculation or the deposit requirement phase, resulting in an inflated final amount.
Memory Technique
Remember 'PAD': Payroll × Annual rate × Deposit percentage. For self-insurance, always multiply the calculated premium by 125% (1.25) to get the required deposit amount.
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