Calculate the annual workers compensation cost for a NC roofing contractor with 8 employees averaging $35,000 annual salary each, with a workers compensation rate of $12.75 per $100 of payroll:
Correct Answer
D) $35,700
Total payroll = 8 × $35,000 = $280,000. Premium = ($280,000 ÷ $100) × $12.75 = 2,800 × $12.75 = $35,700
Why This Is the Correct Answer
Step 1 — Total payroll: 8 employees × $35,000 = $280,000. Step 2 — Convert payroll to $100 units: $280,000 ÷ $100 = 2,800 units. Step 3 — Multiply by rate: 2,800 × $12.75 = $35,700. The formula is: Premium = (Total Payroll ÷ 100) × Rate per $100.
Why the Other Options Are Wrong
Option A: $41,800
$41,800 does not result from the correct formula. It may come from multiplying a single employee's salary by the rate ($35,000 × $12.75 ÷ $100 = $4,462.50 × some incorrect factor) or from an arithmetic error.
Option B: $32,500
$32,500 is likely derived from using only 7 employees instead of 8, or by misapplying the rate (e.g., dividing instead of multiplying at some step).
Option C: $38,250
$38,250 could result from using a payroll of $300,000 (rounding 8 × $35,000 incorrectly to $300K) and applying the rate: 3,000 × $12.75 = $38,250. This is an arithmetic error in total payroll.
Memory Technique
Formula mantra: 'Total Pay, Divide by 100, Times the Rate.' Write it as: (Total Payroll / 100) × Rate = Premium. For roofing, rates are high — roofing is one of the riskiest trades, so expect a rate like $12-$15 per $100.
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