A sole proprietorship construction business has annual payroll of $480,000. If the workers' compensation rate is $8.50 per $100 of payroll, what is the annual workers' compensation premium?
Correct Answer
B) $40,800
Workers' comp premium = (Payroll ÷ 100) × Rate = ($480,000 ÷ 100) × $8.50 = 4,800 × $8.50 = $40,800. This calculation determines the annual premium based on the payroll exposure and the classification rate.
Why This Is the Correct Answer
The correct calculation follows the standard workers' compensation premium formula. First, divide the annual payroll by 100 to get the exposure units: $480,000 ÷ 100 = 4,800 units. Then multiply by the rate of $8.50 per $100 of payroll: 4,800 × $8.50 = $40,800. This represents the annual premium the contractor must pay for workers' compensation coverage.
Why the Other Options Are Wrong
Option A: $43,400
$35,600 would result from using an incorrect rate of approximately $7.42 per $100 of payroll instead of the given $8.50 rate
Option C: $38,200
$38,200 would result from using an incorrect rate of approximately $7.96 per $100 of payroll instead of the given $8.50 rate
Option D: $35,600
$43,400 would result from using an incorrect rate of approximately $9.04 per $100 of payroll instead of the given $8.50 rate
Memory Technique
Remember 'Payroll Per 100' - PPP. Always convert payroll to units of 100 first, then multiply by the rate per $100
Reference Hint
Florida Building Contractor's Reference Manual - Chapter on Insurance Requirements and Workers' Compensation
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