A general contractor has 8 employees with a total annual payroll of $480,000. If the workers compensation rate is $3.25 per $100 of payroll, what is the annual workers compensation premium?
Correct Answer
D) $15,600
The calculation is: ($480,000 ÷ $100) × $3.25 = 4,800 × $3.25 = $15,600. Workers compensation premiums are calculated based on payroll amounts and classification rates.
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 ($480,000 ÷ $100) × $3.25 = 4,800 × $3.25 = $15,600. This is the standard method used by insurance companies to determine workers compensation costs based on payroll exposure.
Why the Other Options Are Wrong
Option B: $12,600
This answer is too low and likely results from an error in the calculation, possibly dividing by the wrong amount or using an incorrect rate.
Option C: $20,800
This answer significantly exceeds the correct premium and indicates a major calculation error, possibly multiplying instead of dividing or using the wrong rate.
Memory Technique
Remember 'Divide by 100, then Multiply' - think 'D100M' for workers comp calculations. The rate is always per $100 of payroll.
Reference Hint
Look up workers compensation insurance calculations in the Business and Finance chapter or Insurance section of your contractor reference manual.
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