A general contractor's business has 8 employees and annual payroll of $480,000. If the workers' compensation rate is $8.50 per $100 of payroll, what is the annual workers' compensation premium?
Correct Answer
B) $40,800
Workers' comp premium = ($480,000 ÷ $100) × $8.50 = 4,800 × $8.50 = $40,800. The rate is applied per $100 of payroll to calculate the total premium.
Why This Is the Correct Answer
The workers' compensation premium is calculated by dividing the total annual payroll by $100, then multiplying by the rate per $100. With a $480,000 payroll and $8.50 rate per $100, the calculation is ($480,000 ÷ $100) × $8.50 = 4,800 × $8.50 = $40,800. This is the standard method for calculating workers' compensation premiums in the construction industry.
Why the Other Options Are Wrong
Option A: $48,000
This answer of $48,000 appears to be using 10% of the payroll ($480,000 × 0.10), which ignores the specific rate structure of workers' compensation calculations.
Option D: $35,200
This answer of $45,600 suggests an error in the rate application, possibly using a higher rate than specified or miscalculating the payroll division.
Memory Technique
Think 'Payroll Per Hundred' - PPH. Always divide payroll by 100 first, then multiply by the rate to get your premium.
Reference Hint
Florida Building Code - Administrative provisions chapter on contractor insurance requirements and workers' compensation calculations
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