A contractor's workers compensation rate is $8.50 per $100 of payroll for carpenters. If the annual carpenter payroll is $185,000, what is the workers compensation premium?
Correct Answer
A) $15,725.00
Workers compensation premium = (Payroll ÷ 100) × Rate. ($185,000 ÷ 100) × $8.50 = 1,850 × $8.50 = $15,725.00.
Why This Is the Correct Answer
The workers compensation premium is calculated by dividing the total payroll by 100, then multiplying by the rate per $100 of payroll. This formula accounts for the fact that workers compensation rates are typically expressed as a cost per $100 of payroll rather than a percentage. The calculation yields $15,725.00, which represents the annual premium the contractor must pay for workers compensation insurance coverage for carpenters.
Why the Other Options Are Wrong
Option B: $15.73
This answer ($1,572.50) results from incorrectly dividing the final answer by 10, possibly from misunderstanding the rate structure or making an arithmetic error in the calculation process.
Option C: $1,572.50
This answer ($15.73) results from dividing the correct answer by 1,000, likely from confusion about decimal placement or misunderstanding how workers compensation rates are applied to payroll amounts.
Memory Technique
Remember 'Divide by 100, then Multiply' - the acronym 'DM' can help you recall the two-step process for workers comp premium calculations.
Reference Hint
Look up workers compensation insurance calculations in the Business and Finance chapter, specifically the section on insurance premium calculations and payroll-based rates.
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