Calculate the annual workers' compensation cost for a contractor with 8 employees earning $45,000 each, with a rate of $8.25 per $100 of payroll:
Correct Answer
C) $29,700
Total payroll = 8 × $45,000 = $360,000. Premium = ($360,000 ÷ $100) × $8.25 = 3,600 × $8.25 = $29,700
Why This Is the Correct Answer
Total payroll = 8 × $45,000 = $360,000. Premium = ($360,000 ÷ $100) × $8.25 = 3,600 × $8.25 = $29,700. This is the standard workers' comp premium formula.
Why the Other Options Are Wrong
Option A: $31,500
$31,500 results from using an incorrect multiplier or miscomputing the number of $100 units (e.g., using $8.75 per $100 instead of $8.25).
Option B: $28,800
$28,800 likely comes from using a rate of $8.00 per $100 instead of $8.25, or from omitting one employee from the payroll calculation.
Option D: $30,600
$30,600 results from using a rate of $8.50 per $100 rather than $8.25, an off-by-one rounding error in the rate.
Memory Technique
Formula: (Total Payroll ÷ 100) × Rate. Step 1: employees × wage = total payroll. Step 2: total payroll ÷ 100 = payroll units. Step 3: payroll units × rate = premium.
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