A contractor has 5 employees with a total weekly payroll of $3,200. Using a workers' compensation rate of $8.50 per $100 of payroll, what is the weekly workers' compensation premium?
Correct Answer
D) $272.00
Weekly premium = ($3,200 ÷ $100) × $8.50 = 32 × $8.50 = $272.00
Why This Is the Correct Answer
Workers' comp premium = (Total payroll ÷ $100) × rate per $100. Calculation: ($3,200 ÷ $100) × $8.50 = 32 × $8.50 = $272.00. The number of employees (5) is given as context but is not used in the premium calculation — only total payroll matters.
Why the Other Options Are Wrong
Option A: $27.20
$27.20 results from dividing the payroll by $1,000 instead of $100 before multiplying by the rate: ($3,200 ÷ $1,000) × $8.50 = $27.20. This is a factor-of-10 error.
Option B: $320.00
$320.00 results from multiplying the payroll divided by 100 by $10.00 instead of $8.50, or from another calculation error. It does not reflect the correct application of the $8.50 rate.
Option C: $85.00
$85.00 results from multiplying $8.50 by 10 — perhaps using $1,000 as the denominator and then further miscalculating. It does not follow the standard workers' comp premium formula.
Memory Technique
Workers' comp formula: 'Payroll per hundred, times the rate.' Write it as: (Payroll ÷ 100) × Rate = Premium. Think of it as the rate is priced per $100 of payroll — so you must first find how many '$100 units' are in the payroll. $3,200 contains 32 such units; 32 × $8.50 = $272.
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