A general contractor has 15 employees with an annual payroll of $1,200,000. The workers' compensation rate for their classification is $8.50 per $100 of payroll. What is the annual workers' compensation premium?
Correct Answer
C) $102,000
Workers' comp premium = ($1,200,000 ÷ $100) × $8.50 = 12,000 × $8.50 = $102,000. The rate is applied per $100 of payroll for the specific classification code.
Why This Is the Correct Answer
The correct answer is B ($102,000) because workers' compensation premiums are calculated by dividing the total payroll by $100, then multiplying by the rate per $100. With a $1,200,000 payroll divided by $100 equals 12,000 units, and 12,000 × $8.50 = $102,000. This is the standard method used by insurance companies to calculate workers' comp premiums based on classification codes.
Why the Other Options Are Wrong
Option A: $108,000
Option A ($98,000) is incorrect because it represents an undercalculation of the premium, possibly from using an incorrect rate or making an arithmetic error in the multiplication.
Option D: $98,000
Option C ($108,000) is incorrect because it overcalculates the premium, possibly from adding an incorrect factor or using a higher rate than the given $8.50 per $100.
Memory Technique
Remember 'Divide by 100, then Multiply' - think 'D100M' to recall the two-step process for workers' comp calculations.
Reference Hint
Florida Building Code - Administrative Chapter, Section on Insurance Requirements and Workers' Compensation calculations
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