An Oregon contractor has 3 employees with a total annual payroll of $180,000. If the workers' compensation rate for their classification is $2.50 per $100 of payroll, what is their annual premium?
Correct Answer
C) $4,500
Premium = ($180,000 ÷ $100) × $2.50 = 1,800 × $2.50 = $4,500
Why This Is the Correct Answer
The workers' compensation premium formula is: (Total Payroll ÷ 100) × Rate per $100. Applying this: ($180,000 ÷ 100) × $2.50 = 1,800 × $2.50 = $4,500. The number of employees (3) is irrelevant to this calculation—workers' comp premiums in Oregon are based on total payroll dollars and classification rate, not headcount.
Why the Other Options Are Wrong
Option A: $7,200
$7,200 results from multiplying $180,000 × 0.04 (a 4% rate), suggesting the test-taker applied the wrong rate or converted the rate incorrectly. Another path to $7,200 would be $2.50 × 3 employees × some incorrect payroll figure—neither reflects correct formula application.
Option B: $18,000
$18,000 results from applying the rate as 10% of payroll ($180,000 × 0.10), which is a 10x error—treating $2.50 per $100 as $10 per $100. This mistake comes from forgetting to divide payroll by 100 before multiplying by the rate.
Option D: $4,320
$4,320 is a plausible distractor that could result from using a slightly different payroll base (e.g., $172,800 instead of $180,000) or applying a slightly different rate. It may represent a miscalculation where the test-taker subtracted something from payroll before applying the rate, or made an arithmetic error.
Memory Technique
Workers' comp formula: 'Payroll divided by 100, then times the rate.' Think of it as: 'How many hundreds of dollars am I paying out?' ($180,000 payroll = 1,800 hundreds.) Then multiply those hundreds by the rate per hundred ($2.50). 1,800 × $2.50 = $4,500.
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