A contractor employs 15 workers with varying wage rates. The total annual payroll is $780,000. If the workers' compensation rate is $3.25 per $100 of payroll, what is the annual premium?
Correct Answer
B) $25,350
Annual premium = ($780,000 ÷ $100) × $3.25 = 7,800 × $3.25 = $25,350.
Why This Is the Correct Answer
Workers' comp premiums are calculated by dividing total payroll by $100 and multiplying by the rate. $780,000 ÷ $100 = 7,800 units × $3.25 = $25,350. The number of workers (15) is irrelevant to the calculation — only total payroll and the rate matter.
Why the Other Options Are Wrong
Option A: $27,300
$27,300 results from multiplying $780,000 by a rate of $3.50 per $100 (or from an arithmetic error), not by the stated $3.25 rate.
Option C: $29,250
$29,250 results from using a rate of $3.75 per $100, which is higher than the stated rate of $3.25.
Option D: $23,400
$23,400 results from using a rate of $3.00 per $100, which is lower than the stated rate of $3.25.
Memory Technique
Formula: (Total Payroll ÷ 100) × Rate = Premium. Think of it as finding how many '$100 chunks' are in the payroll, then applying the rate to each chunk. $780,000 has 7,800 chunks; 7,800 × $3.25 = $25,350.
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