A South Carolina contractor has 8 employees with a total annual payroll of $320,000. If the workers compensation rate is 4.5% for their classification, what is their annual premium?
Correct Answer
A) $14,400
Annual premium = $320,000 × 0.045 = $14,400. Workers compensation rates are applied to the total payroll.
Why This Is the Correct Answer
$320,000 × 0.045 = $14,400. Workers' compensation premiums are calculated by applying the classification rate directly to total payroll. The number of employees is irrelevant once total payroll is known.
Why the Other Options Are Wrong
Option B: $12,800
$12,800 results from dividing $320,000 by 25 or applying an incorrect 4% rate. No standard WC rate produces this figure from the given payroll.
Option C: $18,000
$18,000 results from applying a 5.625% rate instead of 4.5%, or from multiplying $320,000 by an incorrect factor.
Option D: $16,200
$16,200 results from applying approximately a 5.0625% rate. This may come from confusing the rate or adding a surcharge that does not appear in the question.
Memory Technique
Rate as a % → multiply directly: Payroll × Rate% = Premium. Rate stated as '$X per $100' → divide payroll by 100 first, then multiply. Identify which format the question uses before calculating.
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