A contractor is calculating workers' compensation costs for a project. The estimated labor cost is $125,000 with a rate of $4.25 per $100 of payroll. What should be budgeted for workers' compensation?
Correct Answer
D) $5,312.50
Workers' compensation cost = ($125,000 ÷ $100) × $4.25 = 1,250 × $4.25 = $5,312.50
Why This Is the Correct Answer
Workers' compensation premiums are calculated as: (Total Payroll ÷ $100) × Rate per $100. Plugging in the numbers: ($125,000 ÷ $100) × $4.25 = 1,250 × $4.25 = $5,312.50. This is a standard industry formula used by all contractors to estimate insurance costs in their bids.
Why the Other Options Are Wrong
Option A: $5,200.00
$5,200.00 does not result from the correct formula applied to these figures. It may come from using a slightly wrong rate or rounding error in the calculation. The exact arithmetic yields $5,312.50.
Option B: $5,000.00
$5,000.00 is a round number that does not match the calculation. It would result from using a rate of $4.00 per $100 ($125,000 ÷ $100 × $4.00 = $5,000), not the stated $4.25 rate.
Option C: $5,500.00
$5,500.00 overstates the cost. It would result from using a rate of $4.40 per $100 ($125,000 ÷ $100 × $4.40 = $5,500), not the $4.25 rate given in the problem.
Memory Technique
Workers' comp formula: 'Payroll Hundreds times Rate.' Divide payroll by 100 first, THEN multiply by the rate. Think of the rate as cents per dollar of payroll — $4.25 per $100 = 4.25 cents per dollar.
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A contractor's employee is injured on a job site. The medical costs are $15,000 and lost wages are $8,500. If NC workers' compensation covers 66.67% of wages, what is the total compensation owed?
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