A Michigan LLC contractor has 8 employees with a total annual payroll of $320,000. If the workers' compensation rate is 2.8%, what is the total annual workers' compensation premium?
Correct Answer
A) $8,960
Total premium = $320,000 × 0.028 = $8,960. Workers' compensation premiums are based on total payroll regardless of number of employees.
Why This Is the Correct Answer
$320,000 × 0.028 = $8,960. Workers' compensation premiums are calculated as a percentage of total payroll. The number of employees is irrelevant to the calculation.
Why the Other Options Are Wrong
Option B: $9,600
$9,600 would require a rate of 3.0%, not 2.8%. This is a common rounding error or rate confusion.
Option C: $9,280
$9,280 results from applying 2.9% instead of 2.8% — a one-tenth percent slip in the rate.
Option D: $8,640
$8,640 results from applying 2.7% instead of 2.8% — another off-by-one-tenth percent error.
Memory Technique
Workers' comp = Payroll × Rate. Ignore employee headcount — it's a red herring. Convert 2.8% correctly: 2.8 ÷ 100 = 0.028. Then $320,000 × 0.028: think $320 × 28 = $8,960.
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Under Michigan Act 299, a maintenance and alteration contractor license allows work up to what maximum dollar amount per project?
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