A Michigan contractor has a $150,000 project with materials costing $45,000, labor at $60,000, and overhead/profit of $45,000. If the workers' compensation rate is 8.5% of labor costs, what is the total workers' comp premium?
Correct Answer
C) $5,100
Workers' compensation is calculated on labor costs only: $60,000 × 8.5% = $5,100. Materials and overhead/profit are not subject to workers' comp premiums.
Why This Is the Correct Answer
Workers' compensation premiums are calculated exclusively on payroll (labor costs), not on materials, overhead, or profit. The calculation is: $60,000 (labor) × 8.5% = $5,100. This is the industry-standard method used by all insurance carriers and required by Michigan regulations.
Why the Other Options Are Wrong
Option A: $12,750
$12,750 results from applying the 8.5% rate to the full project cost ($150,000 × 8.5% = $12,750). This is incorrect because workers' comp is calculated only on labor, not on total project value.
Option B: $8,925
$8,925 results from applying 8.5% to the combined materials and labor ($105,000 × 8.5% = $8,925). Materials are not subject to workers' comp premiums — only the labor portion qualifies.
Option D: $3,825
$3,825 results from applying 8.5% to either overhead/profit ($45,000 × 8.5% = $3,825) — a figure that represents the wrong base. Overhead and profit are not payroll components and are excluded from workers' comp calculations.
Memory Technique
Workers' comp = 'Workers get paid, workers get covered.' Only the paycheck (labor cost) is the base for workers' comp. Materials don't get injured; only workers do.
More Michigan Questions
A Michigan contractor forms an S-Corporation. What is the maximum number of shareholders allowed?
A contractor's employee is injured on a job site in Michigan. The contractor's workers' compensation insurance has a $500 deductible per claim. The total medical costs are $12,500 and lost wages are $3,200. What is the contractor's out-of-pocket cost for this claim?
What is the minimum general liability insurance coverage amount required for Michigan residential builders?
Under Michigan Act 299, what is the consequence for a contractor who performs work outside the scope of their license classification?
A contractor discovers that a subcontractor has filed a construction lien against their project. The general contractor believes the lien is invalid. What is the primary legal mechanism to challenge the lien in Michigan?
Under Michigan Act 299, what happens if a contractor continues to work without a valid license after it expires?
Which of the following best describes the 'pay when paid' clause limitation under Michigan law?
A project has total costs of $180,000 including $75,000 labor and $105,000 materials. With workers compensation at 7.8% of labor costs and general liability at 0.4% of total costs, what are the combined insurance costs?
A Michigan contractor is forming an LLC. What is the minimum general liability insurance coverage required for residential builders under Michigan law?
Under Michigan Act 299, a contractor's license must be renewed every:
People Also Study
Business & Financial Management
120 questions · 70% to pass
Contract Administration
60 questions · 70% to pass
Project Management
60 questions · 70% to pass
Related Study Resources
Previous Question
Under Michigan Act 299, a contractor's license can be suspended for all of the following reasons EXCEPT:
Next Question
A subcontractor performs $45,000 of electrical work but is not paid by the general contractor. Under Michigan lien law, what preliminary notice requirement must be satisfied to preserve lien rights?