A contractor has 12 employees with an annual payroll of $480,000. If the workers' compensation rate is 8.5% of payroll, what is the annual premium?
Correct Answer
C) $40,800
Annual premium = $480,000 × 0.085 = $40,800. Workers' compensation rates are applied to the total payroll amount.
Why This Is the Correct Answer
The correct answer is C ($40,800) because workers' compensation premium is calculated by multiplying the total annual payroll by the applicable rate: $480,000 × 0.085 = $40,800. The number of employees is given as context but the rate is applied to total payroll, not per employee.
Why the Other Options Are Wrong
Option A: $38,400
$38,400 is incorrect. This would result from applying a rate of 8% ($480,000 × 0.08 = $38,400), not the stated 8.5% rate.
Option B: $42,200
$42,200 is incorrect. This figure does not correspond to any standard calculation of $480,000 × 8.5% and appears to be a distractor.
Option D: $44,600
$44,600 is incorrect. This would imply a rate of approximately 9.29%, which is not the rate given in the problem.
Memory Technique
Think of it as: WC Premium = Payroll × Rate. The employee count is a red herring. Just multiply the two dollar-and-rate figures given.
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