A contractor has 15 employees and annual payroll of $780,000. The workers compensation rate is $4.25 per $100 of payroll. What is the annual premium?
Correct Answer
D) $33,150
Annual premium = ($780,000 ÷ $100) × $4.25 = 7,800 × $4.25 = $33,150.
Why This Is the Correct Answer
Option D is correct because the workers compensation premium calculation follows the standard formula: (Annual Payroll ÷ $100) × Rate per $100. With a payroll of $780,000 and rate of $4.25 per $100, the calculation is ($780,000 ÷ $100) × $4.25 = 7,800 × $4.25 = $33,150. This represents the total annual workers compensation insurance premium the contractor must pay.
Why the Other Options Are Wrong
Option A: $35,100
Option A ($35,100) is incorrect because it appears to result from a calculation error, possibly multiplying by an incorrect rate or mishandling the division by 100. The correct calculation yields $33,150, not $35,100.
Option B: $31,200
Option B ($31,200) is incorrect because it underestimates the premium. This could result from using an incorrect rate or making an arithmetic error in the multiplication step of the workers compensation premium calculation.
Option C: $37,050
Option C ($37,050) is incorrect because it overestimates the premium significantly. This error might stem from using the wrong rate per $100 of payroll or incorrectly applying the workers compensation premium formula.
Memory Technique
Remember 'Divide then Multiply': Always divide the total payroll by 100 first, then multiply by the rate per $100. Think 'D-M' for workers comp calculations.
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