A contractor has 12 employees and an annual payroll of $480,000. If 4 employees work in office administration (rate: $0.35 per $100) with $120,000 payroll, and 8 work in construction (rate: $8.50 per $100) with $360,000 payroll, what is the total workers compensation premium?
Correct Answer
B) $31,020
Office: ($120,000 ÷ $100) × $0.35 = $420. Construction: ($360,000 ÷ $100) × $8.50 = $30,600. Total: $420 + $30,600 = $31,020
Why This Is the Correct Answer
This problem requires calculating two separate premiums and adding them together. Office premium: ($120,000 ÷ 100) × $0.35 = 1,200 × $0.35 = $420. Construction premium: ($360,000 ÷ 100) × $8.50 = 3,600 × $8.50 = $30,600. Total: $420 + $30,600 = $31,020. The key insight is that different job classifications carry drastically different risk rates — office work at $0.35 vs. construction at $8.50 per $100.
Why the Other Options Are Wrong
Option A: $3,480
$3,480 likely results from applying the office rate ($0.35) to the entire payroll or from a calculation error that ignores the construction premium. This figure is far too low for a contractor with $360,000 in construction payroll.
Option C: $30,600
$30,600 is only the construction portion of the premium. This is a partial-answer trap — candidates who forget to add the office premium ($420) land here. The total must include both classifications.
Option D: $3,060
$3,060 appears to result from applying the wrong rate to the wrong payroll or from a decimal placement error. It does not correctly reflect either classification's premium calculation.
Memory Technique
Split payroll = split calculation. Calculate each class separately, then ADD. Office workers are cheap to insure ($0.35); construction workers are expensive ($8.50). Always do: (Payroll ÷ 100) × Rate for EACH group, then sum all groups.
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