A Michigan contractor with 12 employees has a workers' compensation experience modification factor of 1.25. If the base premium is $18,000, what is the adjusted premium?
Correct Answer
D) $22,500
Adjusted premium = Base premium × Experience mod = $18,000 × 1.25 = $22,500
Why This Is the Correct Answer
The adjusted workers' compensation premium is calculated by multiplying the base premium by the experience modification factor (EMF). $18,000 × 1.25 = $22,500. An EMF greater than 1.0 indicates the employer has had more claims than average for their industry, resulting in a higher-than-base premium.
Why the Other Options Are Wrong
Option A: $20,250
$20,250 would result from multiplying $18,000 × 1.125, not 1.25. This is a miscalculation error, possibly from misreading the mod factor.
Option B: $14,400
$14,400 would result from multiplying $18,000 × 0.80. This would represent a favorable (below-average) experience mod, not 1.25. A mod of 1.25 increases the premium, not decreases it.
Option C: $18,000
$18,000 is the base (unmodified) premium. An EMF of 1.0 would leave the premium unchanged, but 1.25 is above 1.0, so the adjusted premium must be higher than the base.
Memory Technique
EMF is a multiplier. Base × Mod = Adjusted. '1.25 mod' means you pay 125% of what an average employer in your class pays. $18,000 × 1.25: multiply $18,000 by 1, then add $18,000 × 0.25 ($4,500) = $22,500.
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