A general contractor's workers' compensation insurance has a rate of $8.50 per $100 of payroll for a specific classification. If the monthly payroll for that classification is $45,000, what is the monthly workers' comp premium?
Correct Answer
D) $3,825
Workers' comp premium = (Payroll ÷ 100) × Rate = ($45,000 ÷ 100) × $8.50 = 450 × $8.50 = $3,825. The rate is applied per $100 of payroll.
Why This Is the Correct Answer
Option A is correct because workers' compensation premiums are calculated by dividing the payroll by 100, then multiplying by the rate. The calculation is: ($45,000 ÷ 100) × $8.50 = 450 × $8.50 = $3,825. This follows the standard workers' comp formula where rates are expressed per $100 of payroll, making the monthly premium $3,825.
Why the Other Options Are Wrong
Option A: $382.50
This results from dividing the correct answer by 10, similar to option B but with different intermediate steps. It represents a decimal point error or misunderstanding of the rate application, yielding $529.40 instead of the correct $3,825.
Option B: $529.40
This answer comes from incorrectly multiplying the payroll directly by the rate ($45,000 × $8.50 ÷ 100 = $3,825, but then adding extra calculations). This shows confusion about the proper sequence of operations in workers' compensation premium calculations.
Option C: $5,294
This answer results from incorrectly dividing the final result by 10, likely from confusion about decimal placement. The calculation would be $3,825 ÷ 10 = $382.50, which represents a fundamental misunderstanding of how workers' compensation rates are applied to payroll amounts.
Memory Technique
Remember 'Payroll Per Hundred' - PPH. Workers' comp rates are always 'per $100 of payroll,' so divide payroll by 100 first, then multiply by the rate. Think: P÷100×R = Premium.
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