A contractor's workers compensation premium is calculated at $8.50 per $100 of payroll for a specific class code. If the annual payroll for this classification is $450,000, what is the premium?
Correct Answer
B) $38,250
Workers comp premium = ($450,000 ÷ $100) × $8.50 = 4,500 × $8.50 = $38,250.
Why This Is the Correct Answer
Workers compensation premiums are calculated by dividing the total payroll by $100 to get the number of units, then multiplying by the rate per $100. With a payroll of $450,000 divided by $100, we get 4,500 units. Multiplying 4,500 units by the rate of $8.50 per unit equals $38,250. This is the standard formula used throughout the construction industry for workers comp premium calculations.
Why the Other Options Are Wrong
Option A: $52,941
This answer of $3,825 appears to be the result of incorrectly dividing the final answer by 10, possibly from a decimal point error or misunderstanding the rate calculation.
Option C: $45,000
This answer of $52,941 appears to result from incorrectly dividing $450,000 by $8.50, which reverses the proper calculation method and doesn't account for the per $100 rate structure.
Memory Technique
Remember 'Divide by 100, then Multiply' - the acronym 'DM' like 'Direct Method' for workers comp calculations.
Reference Hint
Florida Building Contractor Reference Manual - Chapter on Insurance Requirements and Workers Compensation calculations
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