A workers' compensation audit reveals your company's actual payroll was $750,000 versus the estimated $600,000. If the rate is $8.50 per $100 of payroll, what additional premium is owed?
Correct Answer
D) $12,750
Difference in payroll = $750,000 - $600,000 = $150,000. Additional premium = ($150,000 ÷ $100) × $8.50 = 1,500 × $8.50 = $12,750.
Why This Is the Correct Answer
The correct answer is A because workers' compensation premiums are calculated based on the difference between actual and estimated payroll. First, we find the payroll difference ($750,000 - $600,000 = $150,000). Then we apply the rate of $8.50 per $100 of payroll by dividing the difference by 100 and multiplying by the rate ($150,000 ÷ $100 × $8.50 = $12,750). This represents the additional premium owed due to the higher actual payroll.
Why the Other Options Are Wrong
Option A: $63,750
This answer ($51,000) calculates the premium on the estimated payroll amount ($600,000 ÷ $100 × $8.50) rather than on the difference between actual and estimated payroll.
Option B: $51,000
This answer ($63,750) calculates the total premium on the actual payroll ($750,000 ÷ $100 × $8.50) rather than just the additional premium owed on the difference.
Option C: $15,000
This answer ($15,000) appears to be calculated by simply multiplying the payroll difference by a flat percentage, ignoring the 'per $100' rate structure that workers' compensation uses.
Memory Technique
Remember 'ADD' for workers' comp audits: Additional premium = Actual minus estimated, Divide by 100, then multiply by Dollar rate
Reference Hint
Florida Building Contractor's Reference Manual - Chapter on Insurance Requirements and Workers' Compensation
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