A contractor employs 8 workers and pays $125,000 in annual wages. If the workers' compensation rate is $3.50 per $100 of wages, what is the annual premium?
Correct Answer
B) $4,375
Workers' compensation premium calculation: ($125,000 ÷ $100) × $3.50 = 1,250 × $3.50 = $4,375 annual premium.
Why This Is the Correct Answer
Option B is correct because workers' compensation premiums are calculated by dividing the total annual wages by $100, then multiplying by the rate per $100. The calculation is ($125,000 ÷ $100) × $3.50 = 1,250 × $3.50 = $4,375. This is the standard method used by insurance companies to determine workers' compensation premiums based on payroll exposure.
Why the Other Options Are Wrong
Option A: $3,500
Option A ($3,500) is incorrect because it appears to be calculated using a rate of $2.80 per $100 instead of the given $3.50 rate, resulting in an undercalculated premium.
Option C: $4,500
Option C ($4,500) is incorrect because it overestimates the premium by approximately $125, possibly from rounding errors or using an incorrect rate calculation.
Option D: $5,250
Option D ($5,250) is incorrect because it significantly overestimates the premium, possibly from using a rate of $4.20 per $100 instead of the correct $3.50 rate.
Memory Technique
Remember 'Divide by 100, then Multiply' - think 'D100M' to recall the two-step process for workers' compensation premium calculations.
Reference Hint
Florida Building Contractor's Reference Manual - Chapter on Insurance Requirements and Workers' Compensation calculations
More Business & Finance Questions
A contractor's license expires on March 31st. If they submit a renewal application on April 15th, what additional requirement must be met under Florida regulations?
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
In Florida, what is the minimum workers' compensation insurance coverage required for construction companies with employees?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?
People Also Study
Previous Question
Under Florida Statutes Chapter 713, a contractor must serve a Notice to Owner within how many days of first furnishing labor or materials to preserve lien rights?
Next Question
When conducting an equipment rental vs purchase analysis, which factor is typically NOT considered in the financial comparison?