A contractor's employee is injured on a job site. The workers' compensation premium rate is $8.50 per $100 of payroll. If the employee's annual salary is $52,000, what is the annual premium cost?
Correct Answer
A) $4,420
($52,000 ÷ $100) × $8.50 = 520 × $8.50 = $4,420 annual workers' compensation premium.
Why This Is the Correct Answer
The formula is: (Annual Payroll ÷ $100) × Rate. So ($52,000 ÷ $100) × $8.50 = 520 × $8.50 = $4,420. This is the standard method for calculating workers' compensation premiums.
Why the Other Options Are Wrong
Option B: $4,240
$4,240 results from an arithmetic error, possibly transposing digits or using a slightly different payroll figure. It does not match the correct formula applied to these numbers.
Option C: $4,680
$4,680 is close to the correct answer but results from a calculation error, possibly using a slightly different rate or payroll amount. It may represent a common arithmetic slip.
Option D: $4,520
$4,520 is another plausible-looking distractor that does not result from correctly applying the formula to $52,000 at $8.50 per $100.
Memory Technique
Per $100 means you're counting in hundreds. $52,000 has 520 hundreds. Then multiply: 520 × $8.50 = $4,420. Picture 520 one-hundred dollar bills, each costing $8.50 in insurance.
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