A contractor has 10 employees with an average annual salary of $45,000. The workers' compensation rate is $12.50 per $100 of payroll. What is the annual workers' compensation premium?
Correct Answer
D) $56,250
Total payroll = 10 employees × $45,000 = $450,000. Premium = ($450,000 ÷ $100) × $12.50 = 4,500 × $12.50 = $56,250. Workers' comp rates are expressed per $100 of payroll.
Why This Is the Correct Answer
The correct answer is D) $56,250. To calculate workers' compensation premium, you must first determine the total annual payroll (10 employees × $45,000 = $450,000), then apply the rate per $100 of payroll. Since the rate is $12.50 per $100, you divide the total payroll by $100 to get 4,500 units, then multiply by the rate: 4,500 × $12.50 = $56,250. This is the standard method for calculating workers' compensation premiums in the construction industry.
Why the Other Options Are Wrong
Option A: $5,625
Option A ($5,625) represents only 1/10th of the correct premium, likely resulting from incorrectly using only one employee's salary instead of the total payroll of all 10 employees.
Option B: $12,500
Option B ($12,500) appears to be the result of multiplying the number of employees (10) by the rate ($12.50), which ignores the actual payroll amount and the per-$100 basis of the rate calculation.
Option C: $45,000
Option C ($45,000) is simply the average annual salary per employee, not a premium calculation at all, showing a fundamental misunderstanding of the workers' compensation premium calculation process.
Memory Technique
Remember 'PPR' - Payroll (total), Per-hundred (divide by 100), Rate (multiply). Think 'Per $100' like sales tax - you need the total amount first, then apply the rate per hundred dollars.
Reference Hint
Florida Building Code - Administrative Chapter, Section on Insurance Requirements, or Business and Finance for Contractors chapter covering workers' compensation calculations
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