Calculate the total annual cost for an employee earning $25 per hour, working 40 hours per week, with the employer paying 7.65% for Social Security/Medicare taxes, $3,200 for health insurance, and $1,800 for workers' compensation insurance.
Correct Answer
A) $58,980
Annual wages: $25 × 40 × 52 = $52,000. Employer FICA: $52,000 × 7.65% = $3,978. Total cost: $52,000 + $3,978 + $3,200 + $1,800 = $60,978, rounded to $60,980.
Why This Is the Correct Answer
The calculation correctly determines the total annual cost by adding the base wages ($52,000) plus all employer-paid costs. The FICA taxes are properly calculated at 7.65% of wages ($3,978), and all fixed costs (health insurance $3,200 and workers' comp $1,800) are included. The total of $60,978 rounds to the closest answer choice of $60,980, making option C correct, not B as stated in the explanation.
Why the Other Options Are Wrong
Option C: $56,980
This amount ($58,980) is missing approximately $2,000 in costs, likely excluding one of the insurance components
Option D: $60,980
This amount ($56,980) appears to only include wages and FICA taxes without the health insurance and workers' compensation costs
Memory Technique
Remember 'WFHW' - Wages, FICA, Health, Workers' comp - the four components of total employee cost to employers
Reference Hint
Business and Finance chapter covering payroll costs and employer tax obligations
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