A Nevada contractor has 8 employees with a total annual payroll of $480,000. Using the basic rate of $2.40 per $100 of payroll, what is the annual workers' compensation premium?
Correct Answer
D) $11,520
Workers' compensation premium = ($480,000 ÷ $100) × $2.40 = 4,800 × $2.40 = $11,520.
Why This Is the Correct Answer
The formula is: (Total Payroll ÷ 100) × Rate. ($480,000 ÷ 100) × $2.40 = 4,800 × $2.40 = $11,520. The number of employees is irrelevant to the calculation; only total payroll and the rate matter.
Why the Other Options Are Wrong
Option A: $14,400
$14,400 results from multiplying the number of employees (8) by the payroll in some incorrect manner, or from applying the wrong rate. No standard formula produces this figure from the given inputs.
Option B: $12,480
$12,480 is a common distractor that may arise from dividing payroll by a slightly different base or rounding incorrectly. It does not match the correct formula output.
Option C: $9,600
$9,600 would result from using a rate of $2.00 per $100 instead of $2.40, or from incorrectly dividing the payroll by a larger denominator. The question explicitly states the rate is $2.40.
Memory Technique
Use the formula 'P/100 × R = Premium.' Think of it as: every $100 of payroll 'buys' $2.40 of insurance. Count how many $100 chunks are in your payroll, then multiply by the rate.
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