Calculate the workers' compensation premium for a North Carolina roofing contractor with $500,000 in annual payroll and a rate of $18.50 per $100 of payroll:
Correct Answer
C) $92,500
Workers' compensation premium = ($500,000 ÷ $100) × $18.50 = 5,000 × $18.50 = $92,500
Why This Is the Correct Answer
The workers' compensation premium formula is: (Annual Payroll ÷ 100) × Rate per $100. Applying the numbers: ($500,000 ÷ 100) × $18.50 = 5,000 × $18.50 = $92,500. This is the standard industry formula used by insurance carriers and the NC Rate Bureau. Roofing is classified as a high-hazard trade, which is why the rate ($18.50 per $100) is substantially higher than office or low-risk work.
Why the Other Options Are Wrong
Option A: $95,000
$95,000 results from an arithmetic error. One common mistake is dividing $500,000 by 100 to get 5,000 and then multiplying by $19.00 instead of $18.50, or making a rounding error that adds $2,500 to the correct answer.
Option B: $90,000
$90,000 would result from using a rate of $18.00 per $100 instead of $18.50, understating the rate by $0.50. This is a typical rounding error — candidates round $18.50 down to $18.00.
Option D: $97,500
$97,500 results from using a rate of $19.50 per $100 instead of $18.50, overstating the rate by $1.00. This is an upward rounding or transcription error.
Memory Technique
The formula is 'Payroll per hundred times rate.' Think of it as: how many $100 units are in the payroll? Then multiply by the cost per unit. $500,000 payroll has 5,000 units of $100. Each unit costs $18.50 in insurance. 5,000 × $18.50 = $92,500.
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