A contractor's workers compensation insurance premium is $15,000 annually with an experience modification factor of 1.25. After implementing safety improvements, the mod factor drops to 0.85. What is the new annual premium?
Correct Answer
D) $10,200
Base premium = $15,000 ÷ 1.25 = $12,000. New premium = $12,000 × 0.85 = $10,200. The experience mod factor directly multiplies the base premium.
Why This Is the Correct Answer
The calculation requires two steps. First, derive the base premium: $15,000 ÷ 1.25 = $12,000. Then apply the new mod factor: $12,000 × 0.85 = $10,200. The experience mod factor is always applied to the base (unmodified) premium, not to the current modified premium.
Why the Other Options Are Wrong
Option A: $18,750
$18,750 results from multiplying $15,000 × 1.25, which compounds the old mod factor instead of replacing it. This ignores the need to first back out the original modifier.
Option B: $10,800
$10,800 likely comes from applying 0.85 directly to $15,000 (skipping the base premium derivation): $15,000 × 0.72 or some other arithmetic path. The correct approach must first extract the base premium.
Option C: $12,000
$12,000 is actually the correct base (unmodified) premium—a tempting answer because it is the right intermediate step—but the question asks for the new modified premium after applying 0.85, which is $10,200.
Memory Technique
Experience mod math = DIVIDE then MULTIPLY. Step 1: Remove the old mod (divide current premium by old mod to get base). Step 2: Apply new mod (multiply base by new mod). Never skip to Step 2.
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A public works project requires certified payroll records. The prevailing wage for an electrician is $52.75 per hour with $18.50 in fringe benefits. If an electrician works 8 hours, what is the total prevailing wage obligation?
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A contractor is bidding on a public works project in Los Angeles County with a contract value of $2,000,000. The prevailing wage determination shows carpenter wages at $45.50 per hour. What additional amount must be paid for health and welfare benefits?