A Virginia contractor's employee is injured on a job site. The workers' compensation claim is $85,000. If the contractor's experience modification rate increases from 1.0 to 1.25, calculate the additional annual premium on a base premium of $32,000:
Correct Answer
D) $8,000
New premium = $32,000 × 1.25 = $40,000. Additional premium = $40,000 - $32,000 = $8,000
Why This Is the Correct Answer
The experience modification rate (EMR) is a multiplier applied to the base workers' compensation premium. New premium = Base premium × New EMR = $32,000 × 1.25 = $40,000. The additional premium = $40,000 − $32,000 = $8,000. The $85,000 claim amount is contextual background; the calculation only requires the base premium and the change in EMR.
Why the Other Options Are Wrong
Option A: $12,800
$12,800 would result from multiplying $32,000 × 0.40 (the difference of 1.25 − 1.0 = 0.25 is not 0.40). This is a calculation error likely arising from using the wrong multiplier or percentage.
Option B: $10,400
$10,400 does not match any correct application of the EMR formula to these numbers. It may result from incorrectly applying the claim amount or using an unrelated percentage against the base.
Option C: $6,400
$6,400 would equal 20% of $32,000 (not 25%). A test-taker might arrive here by misreading the EMR change as 0.20 instead of 0.25.
Memory Technique
EMR formula: New Premium = Base × EMR. Additional Cost = New Premium − Old Premium. Keep it simple: $32K × 1.25 = $40K; $40K − $32K = $8K extra. The injury claim dollar amount is a distractor — ignore it for premium math.
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