A contractor with 8 employees needs to calculate their workers' compensation insurance premium. If the base rate is $4.50 per $100 of payroll and the total annual payroll is $480,000, what is the annual premium?
Correct Answer
C) $21,600
($480,000 ÷ $100) × $4.50 = 4,800 × $4.50 = $21,600
Why This Is the Correct Answer
The formula is: (Annual Payroll ÷ $100) × Rate = Premium. ($480,000 ÷ $100) × $4.50 = 4,800 × $4.50 = $21,600. This is the standard workers' compensation premium calculation method used in California.
Why the Other Options Are Wrong
Option A: $22,400
$22,400 results from a calculation error — likely using a slightly incorrect payroll divisor or rate. The correct math yields $21,600, not $22,400.
Option B: $20,800
$20,800 is incorrect. This could result from using $4.33 or a similar rate instead of $4.50, or from a payroll figure error. Always use the exact numbers given in the question.
Option D: $19,600
$19,600 is too low. This result would require either a lower rate or lower payroll than stated. Re-check the arithmetic: 4,800 × $4.50 = $21,600.
Memory Technique
Workers' comp formula: 'Per hundred, times the rate.' Step 1: $480,000 ÷ 100 = 4,800 units. Step 2: 4,800 × $4.50 = $21,600. Write it out on scratch paper on the exam.
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