An Arizona contractor has 12 employees with a total annual payroll of $480,000. The workers compensation rate for their classification is $4.25 per $100 of payroll. What is their annual workers compensation premium?
Correct Answer
D) $20,400
Premium = ($480,000 ÷ $100) × $4.25 = 4,800 × $4.25 = $20,400
Why This Is the Correct Answer
The formula is: Premium = (Total Payroll ÷ $100) × Rate. Calculation: ($480,000 ÷ $100) × $4.25 = 4,800 × $4.25 = $20,400. The number of employees (12) is irrelevant to this calculation — only total payroll and the rate per $100 matter.
Why the Other Options Are Wrong
Option A: $22,800
$22,800 results from an arithmetic error — possibly applying the wrong rate or incorrectly adjusting the payroll figure. For example, multiplying $480,000 by $4.75 per $100 would yield $22,800. The correct rate of $4.25 produces $20,400.
Option B: $18,400
$18,400 results from using a lower-than-correct rate (approximately $3.83 per $100) or from incorrectly reducing the payroll base. Neither adjustment is justified by the problem's data.
Option C: $24,200
$24,200 results from applying a higher rate (approximately $5.04 per $100) or from inflating the payroll base. This is a distractor designed to catch candidates who make rounding or multiplication errors.
Memory Technique
Formula: (Payroll ÷ 100) × Rate = Premium. Think of it as 'rate per hundred dollars earned.' With $480,000 payroll, you have 4,800 'hundred-dollar units.' Multiply by $4.25 each: 4,800 × $4.25 = $20,400.
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A contractor files a preliminary 20-day notice on January 15th for work that began on January 10th. The preliminary notice was delivered to the owner on January 18th. Under A.R.S. 33-981, is this notice valid for lien purposes?
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