An employee earns $52,000 annually. The workers' compensation rate for their classification is $3.50 per $100 of payroll. What is the annual workers' compensation premium for this employee?
Correct Answer
C) $1,820
Workers' compensation premium = (Annual payroll ÷ $100) × Rate. ($52,000 ÷ $100) × $3.50 = 520 × $3.50 = $1,820.
Why This Is the Correct Answer
The workers' compensation premium calculation follows the standard formula used throughout the construction industry. You divide the annual payroll by $100 to get the number of units, then multiply by the rate per $100. This gives us ($52,000 ÷ $100) × $3.50 = 520 × $3.50 = $1,820. This method ensures accurate premium calculations based on the employee's actual wages and their job classification risk level.
Why the Other Options Are Wrong
Option A: $1,750
This answer of $1,680 would result from using an incorrect rate of $3.23 per $100 instead of the given $3.50 rate, or from a calculation error in the multiplication step.
Option B: $1,890
This answer of $1,750 appears to come from using an incorrect rate of $3.37 per $100 instead of the specified $3.50 rate, resulting in an undercalculation of the premium.
Memory Technique
Remember 'Divide by 100, then Multiply' - think 'D100M' to recall the two-step process for workers' comp premium calculations
Reference Hint
Look up Workers' Compensation Insurance calculations in Chapter 10 (Insurance and Bonding) of your contractor reference manual
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