A Virginia contractor has 8 employees with a total annual payroll of $400,000. If the workers' compensation rate is $3.50 per $100 of payroll, what is the annual premium?
Correct Answer
D) $14,000
Annual premium = ($400,000 ÷ $100) × $3.50 = 4,000 × $3.50 = $14,000.
Why This Is the Correct Answer
Workers' compensation premium calculation: $400,000 ÷ $100 = 4,000 units. 4,000 × $3.50 = $14,000 annual premium. The number of employees (8) is irrelevant to the premium calculation — workers' comp premiums are based on payroll dollars, not headcount.
Why the Other Options Are Wrong
Option A: $12,000
$12,000 does not result from the correct formula. It may come from using a different (incorrect) rate or miscalculating the number of $100 payroll units.
Option B: $16,000
$16,000 may result from using $4.00 per $100 instead of $3.50, or from a calculation error in the number of payroll units.
Option C: $18,000
$18,000 may result from using $4.50 per $100 (a common rate for other trades) instead of the $3.50 given, or from miscounting payroll units.
Memory Technique
Workers' comp = Payroll ÷ 100 × Rate. IGNORE employee count — it's a red herring. $400,000 ÷ 100 = 4,000. 4,000 × $3.50 = $14,000. The number of employees tells you nothing about the premium; only total payroll dollars matter.
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