A contractor's employee earning $52,000 annually is injured on the job in Michigan. If the workers' compensation rate is 3.2% of payroll, what is the annual premium for this employee?
Correct Answer
A) $1,664
Annual premium = $52,000 × 0.032 = $1,664. Workers' compensation premiums are calculated as a percentage of payroll.
Why This Is the Correct Answer
$52,000 × 0.032 = $1,664. Workers' compensation premiums are calculated by multiplying the annual payroll by the applicable rate. At 3.2%, a $52,000 salary yields a $1,664 annual premium.
Why the Other Options Are Wrong
Option B: $1,456
$1,456 would result from applying a rate of approximately 2.8% ($52,000 × 0.028 = $1,456). This is an incorrect rate — the question specifies 3.2%.
Option C: $2,080
$2,080 would result from applying a 4.0% rate ($52,000 × 0.04 = $2,080). The question specifies 3.2%, not 4.0%.
Option D: $1,872
$1,872 would result from applying a 3.6% rate ($52,000 × 0.036 = $1,872). Again, the rate given is 3.2%, so this is incorrect.
Memory Technique
Workers' comp formula: Payroll × Rate = Premium. Set up the equation first, then plug in numbers. Sanity-check: 1% of $52,000 = $520; 3% = $1,560; 3.2% = $1,560 + (0.2% × $52,000) = $1,560 + $104 = $1,664.
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