A contractor has 15 employees with a total weekly payroll of $18,500. If the workers' compensation rate is $12.75 per $100 of payroll, what is the weekly premium?
Correct Answer
C) $2,358.75
Weekly premium = ($18,500 ÷ $100) × $12.75 = 185 × $12.75 = $2,358.75
Why This Is the Correct Answer
Workers' compensation premiums are calculated by dividing the payroll by $100 and then multiplying by the rate. Calculation: $18,500 ÷ $100 = 185 units. 185 × $12.75 = $2,358.75. The number of employees (15) is irrelevant to this calculation — premiums are based on payroll dollars, not headcount. This is a standard industry formula used by insurance carriers.
Why the Other Options Are Wrong
Option A: $2,425.00
$2,425.00 does not result from the correct formula. It may be reached by using a slightly different rate (e.g., approximately $13.11 per $100) or by making an arithmetic error in the multiplication step. Verify: 185 × $13.11 ≈ $2,425, suggesting a rate substitution error.
Option B: $2,515.25
$2,515.25 is higher than the correct answer and could result from incorrectly including the number of employees in the calculation (e.g., multiplying by 15 somewhere) or from using an inflated rate. No valid formula produces this result from the given data.
Option D: $2,285.50
$2,285.50 is lower than the correct answer and could result from using a lower rate (approximately $12.35 per $100) or from applying a discount factor that is not part of the stated problem. This answer may also result from a rounding or arithmetic error during the division step.
Memory Technique
Workers' comp formula: (Payroll ÷ 100) × Rate = Premium. Think of it as: every $100 of payroll 'buys' one unit of coverage at the stated rate. $18,500 payroll = 185 units. 185 units × $12.75/unit = $2,358.75.
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