A contractor has 8 employees working on various projects. The annual workers' compensation premium is $24,000. If the contractor fails to maintain coverage, what is the maximum daily penalty exposure?
Correct Answer
A) $8,000 per day (8 employees × $1,000)
Arizona law allows penalties of up to $1,000 per employee per day, so with 8 employees, the maximum daily exposure is $8,000.
Why This Is the Correct Answer
Under Arizona Revised Statutes, contractors who fail to maintain required workers' compensation coverage face penalties of up to $1,000 per employee per day. With 8 employees, the maximum daily penalty exposure is calculated as 8 employees × $1,000 = $8,000 per day. This penalty structure is designed to ensure compliance with mandatory workers' compensation requirements and protect employees.
Why the Other Options Are Wrong
Option B: $5,000 per day maximum statutory limit
This option incorrectly suggests there is a flat $5,000 daily maximum regardless of employee count. Arizona law calculates penalties per employee, not as a capped total amount. The penalty structure is specifically designed to scale with workforce size to incentivize compliance across all employees.
Option C: $500 per employee per day ($4,000 total)
This option uses the wrong penalty amount per employee. While it correctly identifies the per-employee calculation method, it states $500 per employee rather than the actual $1,000 per employee penalty under Arizona law. This results in an incorrect total of $4,000 instead of $8,000.
Option D: $1,000 per day total
This option completely ignores the per-employee penalty structure and suggests a flat $1,000 daily penalty regardless of workforce size. Arizona law specifically calculates penalties based on the number of employees, making this approach fundamentally incorrect for determining maximum exposure.
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