Calculate the workers compensation premium for a South Carolina roofing contractor with $250,000 in annual payroll. The rate classification is 5551 with a rate of $28.50 per $100 of payroll.
Correct Answer
A) $71,250
Workers comp premium = ($250,000 ÷ $100) × $28.50 = 2,500 × $28.50 = $71,250
Why This Is the Correct Answer
The formula for workers' compensation premium is: (Payroll ÷ 100) × Rate. Applying the numbers: ($250,000 ÷ 100) × $28.50 = 2,500 × $28.50 = $71,250. This is a straightforward application of the standard premium calculation formula used across the insurance industry.
Why the Other Options Are Wrong
Option B: $78,500
$78,500 does not result from the correct formula. It may result from an arithmetic error such as using a wrong divisor or multiplying by an incorrect rate. Always verify by working the formula step by step: divide payroll by 100 first, then multiply by the rate.
Option C: $75,000
$75,000 is close but incorrect. It might result from rounding $28.50 up to $30 ($250,000 ÷ 100 × $30 = $75,000) or some other rounding error. The exam requires precise calculation — do not round intermediate values.
Option D: $68,250
$68,250 does not result from correct application of the formula. It could stem from using a lower rate or making a subtraction error. Verify each arithmetic step carefully: $250,000 ÷ 100 = 2,500; then 2,500 × $28.50 = $71,250.
Memory Technique
The rate is always expressed 'per $100 of payroll,' so you must convert payroll into units of $100. Think of it as: how many $100 chunks are in your payroll? ($250,000 ÷ $100 = 2,500 chunks). Then multiply: 2,500 chunks × $28.50 per chunk = $71,250. Roofing has a very high rate (around $28-30 per $100) because it is one of the most hazardous classifications.
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