A Nevada contractor has 8 employees with a total annual payroll of $480,000. If the workers' compensation rate is $3.25 per $100 of payroll, what is the annual premium?
Correct Answer
C) $15,600
Premium = ($480,000 ÷ $100) × $3.25 = 4,800 × $3.25 = $15,600
Why This Is the Correct Answer
Workers' compensation premiums are calculated by dividing the total payroll by $100 and multiplying by the rate. Formula: ($480,000 ÷ $100) × $3.25 = 4,800 × $3.25 = $15,600. The number of employees (8) is irrelevant to the premium calculation — only total payroll and the rate matter.
Why the Other Options Are Wrong
Option A: $16,200
$16,200 is incorrect. This may result from using a slightly higher rate or miscalculating the payroll base. The correct calculation yields $15,600.
Option B: $13,800
$13,800 is too low, possibly resulting from using a lower rate such as $2.875 per $100. The stated rate of $3.25 per $100 applied to $480,000 gives $15,600.
Option D: $14,760
$14,760 does not result from the correct formula. This may come from incorrectly applying the rate to a reduced payroll base or using an incorrect rate. The accurate calculation is 4,800 × $3.25 = $15,600.
Memory Technique
Workers' comp formula: Payroll ÷ 100 × Rate = Premium. Think of it as 'per hundred dollars of payroll.' Always divide first, then multiply. Write it out: '$480,000 ÷ 100 = $4,800 units, then $4,800 × $3.25 = $15,600.'
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