A contractor has 8 employees earning $35,000 annually each. The workers' compensation rate is $4.25 per $100 of payroll. What is the monthly premium?
Correct Answer
D) $991.67
Annual payroll = 8 × $35,000 = $280,000. Annual premium = ($280,000 ÷ $100) × $4.25 = $11,900. Monthly = $11,900 ÷ 12 = $991.67
Why This Is the Correct Answer
Step 1 — Total annual payroll: 8 × $35,000 = $280,000. Step 2 — Annual premium: ($280,000 ÷ 100) × $4.25 = 2,800 × $4.25 = $11,900. Step 3 — Monthly premium: $11,900 ÷ 12 = $991.67. Answer D ($991.67) is correct.
Why the Other Options Are Wrong
Option A: $1,050.00
$1,050.00 is the result of using a rate of $4.50 per $100 instead of $4.25, or making an arithmetic error in the division. It does not match the calculation using the given figures.
Option B: $1,183.33
$1,183.33 would result from an annual premium of approximately $14,200, which does not follow from the given rate and payroll. This is likely an error in multiplying the rate per employee without totaling properly.
Option C: $1,275.00
$1,275.00 equals $15,300 annually, which corresponds to a rate of $5.46 per $100 — significantly higher than the stated $4.25 rate. This is a distractor inflated by calculation error.
Memory Technique
Workers' comp formula: (Total Payroll ÷ 100) × Rate = Annual Premium. Then ÷ 12 = Monthly Premium. Think of it as '$X per $100 of wages earned' — you must first convert payroll into units of $100.
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