A Tennessee residential contractor has 8 employees with a total weekly payroll of $6,400. If the workers' compensation rate is $2.85 per $100 of payroll, what is the weekly workers' compensation premium?
Correct Answer
D) $182.40
Weekly premium = ($6,400 ÷ $100) × $2.85 = 64 × $2.85 = $182.40
Why This Is the Correct Answer
Workers' comp premium = (Payroll ÷ $100) × Rate = ($6,400 ÷ 100) × $2.85 = 64 × $2.85 = $182.40. The rate is applied per $100 of payroll, so the payroll must first be converted to hundreds before multiplying.
Why the Other Options Are Wrong
Option A: $164.80
$164.80 is incorrect. This may result from using a rate of $2.575 per $100 or from a calculation error. It does not equal 64 × $2.85.
Option B: $198.20
$198.20 is incorrect. This may come from applying the rate to the number of employees ($8 × $2.85 = incorrect basis) or from an arithmetic error using a different payroll figure.
Option C: $224.64
$224.64 is incorrect. This could result from applying a different rate (e.g., $3.51 per $100) or multiplying $6,400 directly by $2.85 without first converting to hundreds.
Memory Technique
Workers' comp formula: (Payroll ÷ 100) × Rate per $100. Think of it as: 'How many $100 units are in my payroll?' Then multiply by the rate for each unit. $6,400 ÷ 100 = 64 units. 64 × $2.85 = $182.40.
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