A roofing contractor has a workers' compensation rate of $8.50 per $100 of payroll for roofers. If the monthly payroll for roofers is $25,000, what is the monthly workers' compensation premium?
Correct Answer
C) $2,125.00
Workers' comp premium = ($25,000 ÷ $100) × $8.50 = 250 × $8.50 = $2,125.00. The rate is applied per $100 of payroll.
Why This Is the Correct Answer
Workers' compensation premiums are calculated by dividing the total payroll by $100, then multiplying by the rate per $100. With a $25,000 payroll and $8.50 rate per $100, the calculation is ($25,000 ÷ $100) × $8.50 = 250 × $8.50 = $2,125.00. This standard formula ensures the rate is properly applied to each $100 increment of payroll.
Why the Other Options Are Wrong
Option A: $212.50
This answer of $212.50 appears to be the result of incorrectly dividing the payroll by $1,000 instead of $100, then multiplying by the rate (25 × $8.50 = $212.50). The workers' comp rate is always expressed per $100 of payroll, not per $1,000.
Option B: $425.00
This answer of $425.00 appears to be half of the correct answer, suggesting an error in the calculation process, possibly dividing by 200 instead of 100, or making an arithmetic mistake in the multiplication step.
Memory Technique
Remember 'Divide by 100, then Multiply' - use the acronym 'DM' (Divide, Multiply). Workers' comp is always per $100, so you must first convert your total payroll into $100 units.
Reference Hint
Florida Building Contractor's Reference Manual - Chapter on Insurance Requirements and Workers' Compensation, or Business and Finance section covering insurance calculations
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