A contractor has 8 employees with a total quarterly payroll of $240,000. If the workers' compensation rate is 3.2% for their classification, what is the quarterly premium?
Correct Answer
C) $7,680
Quarterly premium = $240,000 × 0.032 = $7,680. Workers' compensation premiums are calculated based on payroll and classification rates.
Why This Is the Correct Answer
The workers' compensation premium is calculated by multiplying total payroll by the applicable rate: $240,000 × 0.032 = $7,680. This is a straightforward percentage calculation; the number of employees (8) is provided as a distractor and is not used in the premium formula — the premium is based on total payroll, not headcount.
Why the Other Options Are Wrong
Option A: $6,400
$6,400 results from applying a 2.67% rate (or from dividing payroll by a wrong factor). It does not match $240,000 × 3.2% and reflects a calculation error.
Option B: $7,200
$7,200 would result from applying a 3.0% rate to $240,000 ($240,000 × 0.03 = $7,200). Candidates who round the rate down or use the wrong percentage land on this answer.
Option D: $8,000
$8,000 would result from applying a 3.33% rate (approximately $240,000 × 0.0333), or from dividing $240,000 by 30. This is above the stated 3.2% rate and reflects rounding or arithmetic errors.
Memory Technique
Workers' comp formula: Payroll × Rate = Premium. Ignore headcount — it's just noise. $240,000 × 0.032: move the decimal two places left on 3.2 → 0.032, then multiply: 240 × 32 = 7,680 → $7,680.
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