A contractor has 8 employees with a total weekly payroll of $12,000. If the workers' compensation rate is $3.50 per $100 of payroll, what is the weekly workers' compensation premium?
Correct Answer
C) $420
Weekly premium = ($12,000 ÷ $100) × $3.50 = 120 × $3.50 = $420
Why This Is the Correct Answer
Workers' comp premium = (Payroll ÷ 100) × Rate. Step 1: $12,000 ÷ $100 = 120 units. Step 2: 120 × $3.50 = $420. The number of employees (8) is irrelevant — premium is based on total payroll dollars, not headcount.
Why the Other Options Are Wrong
Option A: $520
$520 does not result from any standard application of the given rate to the given payroll. It may mislead candidates who use the number of employees (8) improperly in their calculation.
Option B: $350
$350 results from calculating $3.50 × 100 = $350, treating the payroll units as exactly 100 regardless of actual payroll. This ignores the $12,000 payroll and only applies the rate once.
Option D: $480
$480 might result from incorrectly calculating 8 employees × $60/employee = $480, using a per-employee approach instead of the per-$100-payroll method. Workers' comp is never calculated per employee head count.
Memory Technique
Workers' comp rate is 'per $100 of payroll' — think of it as buying 120 units of coverage at $3.50 each. Break $12,000 into groups of $100: $12,000 ÷ $100 = 120 groups, then multiply by the rate: 120 × $3.50 = $420.
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