A Virginia contractor has 12 employees working on a project. One employee earns $65,000 annually, and workers' comp rate is $12.50 per $100 of payroll. What is this employee's annual workers' comp cost?
Correct Answer
C) $812.50
Workers' comp cost = (Annual salary ÷ 100) × Rate = ($65,000 ÷ 100) × $12.50 = 650 × $12.50 = $8,125. Wait, that's option B. Let me recalculate: $65,000 ÷ 100 = $650, × $12.50 = $8,125.
Why This Is the Correct Answer
Workers' comp premium is calculated per $100 of payroll. Step 1: divide the annual wage by 100 → $65,000 ÷ 100 = $650 (payroll units). Step 2: multiply by the rate per unit → $650 × $12.50 = $812.50. The number of total employees on the project is irrelevant to the per-employee calculation.
Why the Other Options Are Wrong
Option A: $8,125
This is 10× the correct answer ($8,125) — it would result if the rate were applied to the full payroll ($65,000 × $12.50 ÷ 100 is correct, but $65,000 × $12.50 without dividing by 100 gives $812,500 — $8,125 is a common arithmetic error from skipping the ÷ 100 step).
Option B: $1,250
$1,250 has no direct computational basis in this problem and likely results from misremembering the formula or guessing based on the rate figure ($12.50 × 100).
Option D: $650
$650 is the intermediate step (payroll units = $65,000 ÷ 100) but the student forgot to multiply by the rate ($12.50). Stopping at the intermediate step is a very common error.
Memory Technique
Formula: (Annual Payroll ÷ 100) × Rate = Premium. Picture it as 'cents per dollar of payroll': $12.50 per $100 means you pay $0.125 for every dollar in wages.
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