A contractor's employee is injured on a job site in Louisiana. The contractor's workers' compensation premium is $2.50 per $100 of payroll. If the injured employee's annual salary is $52,000, what is the annual workers' compensation premium for this employee?
Correct Answer
D) $1,300
Premium calculation: $52,000 ÷ 100 = 520 units × $2.50 = $1,300 annual premium.
Why This Is the Correct Answer
The workers' compensation rate is expressed per $100 of payroll. Step 1 — Convert salary to $100 units: $52,000 ÷ $100 = 520 units. Step 2 — Multiply by the rate: 520 × $2.50 = $1,300. This is the standard actuarial method used by all workers' compensation carriers to calculate premiums.
Why the Other Options Are Wrong
Option A: $1,400
To get $1,400, a candidate would need to use a rate of approximately $2.69 per $100, or miscalculate the payroll units. There is no basis for either in this problem. $1,400 is a plausible-sounding 'round number' distractor.
Option B: $1,500
$1,500 results from using a rate of $2.50 but applying it to $60,000 in payroll instead of $52,000 (600 × $2.50 = $1,500), or from using a $3.00 rate on the correct payroll (520 × $3.00 = $1,560, close but still wrong). Misreading the salary figure or the rate leads here.
Option C: $1,200
$1,200 results from dividing $52,000 by 100 to get 520 units but then multiplying by $2.31 instead of $2.50, or from mistakenly using $48,000 in payroll (480 × $2.50 = $1,200). This could also come from rounding $52,000 down to $48,000 incorrectly.
Memory Technique
Workers' comp premium = (Payroll ÷ 100) × Rate. Think of it as 'how many $100 bills does this employee earn?' Then multiply by the cost per bill. 520 bills × $2.50 per bill = $1,300.
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