A contractor's payroll for the week is $12,000. If the workers' compensation rate is $3.50 per $100 of payroll, what is the weekly workers' compensation premium?
Correct Answer
C) $420
Workers' compensation premium = (Payroll ÷ 100) × Rate = ($12,000 ÷ 100) × $3.50 = 120 × $3.50 = $420.
Why This Is the Correct Answer
Workers' compensation premiums are calculated per $100 of payroll. Step 1: divide the payroll by 100 → $12,000 ÷ 100 = 120 units. Step 2: multiply by the rate → 120 × $3.50 = $420. This is the standard industry formula used across all states.
Why the Other Options Are Wrong
Option A: $520
$520 does not correspond to any correct application of the formula. It may result from using an incorrect divisor (e.g., dividing by a different number) or from arithmetic error. Always verify by checking units: rate is per $100, so divisor must be 100.
Option B: $480
$480 could result from mistakenly using a rate of $4.00 per $100 (120 × $4.00 = $480) or from a different payroll figure. The given rate is $3.50, so this is simply an arithmetic error.
Option D: $350
$350 results from dividing payroll by 100 and then multiplying by only $2.92 (approximately), or from using $10,000 as the payroll base instead of $12,000. It does not match the stated inputs.
Memory Technique
Think of the rate as 'cents per dollar of payroll': $3.50 per $100 = $0.035 per $1. So: $12,000 × $0.035 = $420. Alternatively, 'shift the decimal two places left on the payroll, then multiply.'
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