A contractor's annual payroll is $1,200,000 with a workers' compensation rate of $4.50 per $100 of payroll. What is the annual workers' compensation premium?
Correct Answer
B) $54,000
Workers' compensation premium is calculated as: ($1,200,000 ÷ $100) × $4.50 = 12,000 × $4.50 = $54,000. The rate is applied per hundred dollars of payroll.
Why This Is the Correct Answer
Option C is correct because workers' compensation premiums are calculated by dividing the total payroll by $100, then multiplying by the rate per $100. The calculation is ($1,200,000 ÷ $100) × $4.50 = 12,000 × $4.50 = $54,000. This method ensures the rate is properly applied per hundred dollars of payroll as specified in the premium structure.
Why the Other Options Are Wrong
Option A: $48,000
$48,000 would result from incorrectly calculating the rate, possibly using $4.00 instead of $4.50 per $100 of payroll
Option C: $56,000
$56,000 is too high and likely results from adding an extra percentage or miscalculating the rate application
Memory Technique
Think 'Divide by 100, then Multiply' - D100M. Workers' comp rates are like buying something that costs $4.50 per hundred-dollar bill in your payroll
Reference Hint
Florida Building Code - Administrative Chapter, Section on Construction Industry Licensing and Insurance Requirements
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