A contractor's workers' compensation rate is $8.50 per $100 of payroll with an experience modification rate of 1.2. If the weekly payroll is $30,000, what is the weekly workers' compensation premium?
Correct Answer
C) $3,060
Base premium = ($30,000 ÷ $100) × $8.50 = 300 × $8.50 = $2,550. With experience modification: $2,550 × 1.2 = $3,060. The EMR of 1.2 indicates higher than average claims experience, increasing the premium by 20%.
Why This Is the Correct Answer
Option B is correct because it properly applies both the base workers' compensation rate and the experience modification rate (EMR). The calculation first determines the base premium by dividing the payroll by $100 and multiplying by the rate ($30,000 ÷ $100 × $8.50 = $2,550). Then the EMR of 1.2 is applied to this base premium ($2,550 × 1.2 = $3,060), reflecting the contractor's higher than average claims history.
Why the Other Options Are Wrong
Option A: $3,825
Option D significantly overestimates the premium, likely from applying an incorrect multiplier or making calculation errors in either the base premium or EMR application.
Option D: $3,400
Option A only calculates the base premium without applying the experience modification rate of 1.2, resulting in $2,550 instead of the final adjusted premium.
Memory Technique
Remember 'BERM' - Base premium first, then Experience modification Rate Multiplier. EMR above 1.0 means higher risk (more claims), EMR below 1.0 means lower risk (fewer claims).
Reference Hint
Look up workers' compensation insurance calculations and experience modification rates in the Business and Finance Management chapter of your contractor reference manual.
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