A contractor's employee earning $52,000 annually is injured on the job in Michigan. If the workers' compensation rate is 8.5% of payroll, what is the annual premium for this employee?
Correct Answer
A) $4,420
Annual premium = $52,000 × 8.5% = $52,000 × 0.085 = $4,420.
Why This Is the Correct Answer
Annual premium = Payroll × Rate = $52,000 × 0.085 = $4,420. Unlike questions where the rate is expressed per $100, this problem states the rate as a percentage of payroll, so you multiply directly.
Why the Other Options Are Wrong
Option B: $4,160
$4,160 results from multiplying $52,000 × 8.0% instead of 8.5%, dropping the 0.5% portion of the rate. This is an arithmetic shortcut error.
Option C: $5,200
$5,200 results from applying a flat 10% rate to $52,000 instead of the stated 8.5%. Candidates who round up to a simpler number will arrive here.
Option D: $4,680
$4,680 results from multiplying $52,000 × 9.0%, an overcalculation of the rate, or from confusing the rate with a different percentage.
Memory Technique
8.5% means 8.5 cents per dollar. $52,000 × $0.085 = $4,420. You can also break it down: $52,000 × 8% = $4,160, plus $52,000 × 0.5% = $260, total = $4,420.
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