A subcontractor's workers' compensation premium is calculated at $8.50 per $100 of payroll. With a monthly payroll of $45,000, what is the monthly premium?
Correct Answer
C) $3,825
Premium = (Payroll ÷ 100) × Rate = ($45,000 ÷ 100) × $8.50 = 450 × $8.50 = $3,825
Why This Is the Correct Answer
Workers' comp premiums are calculated per $100 of payroll. Step 1: Divide payroll by 100 → $45,000 ÷ 100 = 450. Step 2: Multiply by the rate → 450 × $8.50 = $3,825. This is the standard calculation used throughout the insurance industry.
Why the Other Options Are Wrong
Option A: $5,294
$5,294 does not result from any standard application of this formula. It appears to be the result of dividing the rate by payroll or another arithmetic error. Always divide payroll by 100 first, then multiply by the rate.
Option B: $3,400
$3,400 would result from using a rate of approximately $7.56 per $100, not $8.50. This might occur if a test-taker rounds incorrectly or confuses the rate with a different value.
Option D: $4,250
$4,250 would result from using a rate of approximately $9.44 per $100 — essentially applying a rate that is $1 too high. This may occur from adding an extra dollar to the rate or incorrectly converting the formula.
Memory Technique
Per $100 = divide first. Remember: rate is per hundred, so break payroll into hundreds first. $45,000 has 450 hundreds. Multiply 450 × rate.
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