A contractor's total project cost is $65,000 with materials costing $24,000. If the workers' compensation rate is $3.20 per $100 of labor cost, what is the workers' compensation premium?
Correct Answer
C) $1,312.00
Labor cost = $65,000 - $24,000 = $41,000. Premium = ($41,000 ÷ $100) × $3.20 = 410 × $3.20 = $1,312.00
Why This Is the Correct Answer
Labor cost = Total project cost − Materials = $65,000 − $24,000 = $41,000. Workers' comp premium = (Labor cost ÷ $100) × Rate = ($41,000 ÷ $100) × $3.20 = 410 × $3.20 = $1,312.00. The premium is calculated on labor only, not total project cost.
Why the Other Options Are Wrong
Option A: $768.00
$768.00 results from incorrectly using only the materials cost as the base: ($24,000 ÷ $100) × $3.20 = $768. This is the opposite error — applying the rate to materials instead of labor.
Option B: $1,024.00
$1,024.00 does not correspond to any correct calculation path. It may result from rounding errors or using an incorrect labor figure (approximately $32,000 as the labor base, which is not derived correctly).
Option D: $2,080.00
$2,080.00 results from applying the rate to the entire project cost without subtracting materials: ($65,000 ÷ $100) × $3.20 = $2,080. This is the most common error — forgetting that workers' comp is based on labor cost only.
Memory Technique
Workers' comp = workers' pay = LABOR only. The formula is: (Total − Materials) = Labor, then (Labor ÷ 100) × Rate = Premium. Write it as a fraction: Labor/100 × Rate. For this problem: 41,000/100 × 3.20 = 410 × 3.20 = $1,312.
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