A Michigan contractor has a payroll of $180,000 and the workers' compensation rate is 12.3% per $100 of payroll. What is the total workers' compensation premium?
Correct Answer
D) $22,140
Premium = ($180,000 ÷ $100) × $12.3 = 1,800 × $12.3 = $22,140.
Why This Is the Correct Answer
Workers' comp premium = (Payroll ÷ 100) × Rate. Here: ($180,000 ÷ 100) × $12.30 = 1,800 × $12.30 = $22,140. The rate is expressed per $100 of payroll, so you must first convert the payroll to units of $100.
Why the Other Options Are Wrong
Option A: $18,000
$18,000 results from applying a flat 10% to $180,000, ignoring the actual 12.3% rate and the per-$100 calculation method. This is a common error when candidates apply a rounded percentage directly.
Option B: $14,640
$14,640 appears to result from multiplying $180,000 by 8.13% or some other incorrect rate, or from an arithmetic error during the per-$100 conversion.
Option C: $2,214
$2,214 likely results from dividing $180,000 by 1,000 instead of 100 before multiplying by the rate, or from some other order-of-operations error that shrinks the payroll base by a factor of 10.
Memory Technique
Workers' comp formula: Divide payroll by 100, then multiply by the rate. Think: 'Chop the payroll into $100 bills, count the bills, then pay the rate per bill.' For $180,000: 1,800 bills × $12.30 = $22,140.
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