A contractor has 8 employees with a combined weekly payroll of $12,000. If the workers' compensation rate is $6.75 per $100 of payroll, what is the annual premium?
Correct Answer
A) $42,120
Weekly premium = ($12,000 ÷ $100) × $6.75 = $810. Annual premium = $810 × 52 weeks = $42,120.
Why This Is the Correct Answer
Step 1 — Weekly premium: ($12,000 ÷ $100) × $6.75 = 120 × $6.75 = $810. Step 2 — Annual premium: $810 × 52 weeks = $42,120. The number of employees (8) is irrelevant to the calculation — it is provided as a distractor. WC premiums are based on total payroll, not headcount.
Why the Other Options Are Wrong
Option B: $44,280
$44,280 = $810 × 54.67 — there is no 54.67-week year. This distractor likely results from using an incorrect number of weeks (e.g., incorrectly using 54 or 55 weeks).
Option C: $43,200
$43,200 = $900 × 48 or other incorrect arithmetic combinations. It does not result from the correct formula applied correctly.
Option D: $45,360
$45,360 could result from using a slightly higher weekly premium or incorrect week count. It is an above-the-correct-answer distractor designed to catch overestimations.
Memory Technique
WC annual premium = Weekly premium × 52. First solve for weekly (payroll ÷ 100 × rate), then scale to annual. The number of employees is there to confuse you — ignore it.
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