A contractor has 12 employees with a total annual payroll of $480,000. Using South Carolina workers compensation rates of $8.50 per $100 of payroll for construction work, what is the annual premium?
Correct Answer
A) $40,800
Annual premium = ($480,000 ÷ $100) × $8.50 = 4,800 × $8.50 = $40,800
Why This Is the Correct Answer
Option A ($40,800) is correct. The formula is: (Annual Payroll ÷ $100) × Rate = Premium. So ($480,000 ÷ 100) × $8.50 = 4,800 × $8.50 = $40,800. The number of employees (12) is irrelevant to this calculation — only payroll dollars matter.
Why the Other Options Are Wrong
Option B: $42,200
Option B ($42,200) is incorrect. This would require a rate of approximately $8.79 per $100, which does not match the stated $8.50 rate. This is a distractor designed to catch arithmetic errors.
Option C: $38,400
Option C ($38,400) is incorrect. This would imply a rate of $8.00 per $100, not $8.50. A test-taker might arrive here by rounding down the rate or making a subtraction error.
Option D: $44,800
Option D ($44,800) is incorrect. This would require a rate of approximately $9.33 per $100, which is higher than stated. Some may arrive here by incorrectly factoring in the number of employees.
Memory Technique
Workers comp premium formula: Payroll / 100 × Rate. Remember it as 'cents on every hundred dollars of payroll.' $8.50 per $100 means you pay 8.5 cents for every dollar of payroll — so $480,000 × 0.085 = $40,800.
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