A contractor's workers compensation insurance premium is calculated at $8.50 per $100 of payroll for a classification code. If the monthly payroll is $125,000, what is the monthly premium?
Correct Answer
A) $10,625
The calculation is: ($125,000 ÷ $100) × $8.50 = 1,250 × $8.50 = $10,625. Workers compensation premiums are typically calculated per $100 of payroll based on classification codes.
Why This Is the Correct Answer
Option B is correct because workers compensation premiums are calculated by dividing the total payroll by $100, then multiplying by the rate per $100. The calculation is ($125,000 ÷ $100) × $8.50 = 1,250 × $8.50 = $10,625. This standard formula ensures premiums are proportional to payroll exposure for each classification code.
Why the Other Options Are Wrong
Option B: $12,500
Option A ($8,500) represents an incorrect calculation that appears to multiply the rate ($8.50) by 1,000 instead of the correct 1,250 units of $100 in the payroll.
Option C: $8,500
Option D ($15,000) represents 12% of the payroll, which is not based on the given rate structure and significantly overestimates the premium.
Memory Technique
Remember 'Divide by 100, then Multiply' - the acronym 'DM' like 'Direct Method' for workers comp premium calculations.
Reference Hint
Florida Building Contractor's Reference Manual - Chapter on Insurance Requirements and Workers Compensation calculations
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