Calculate the workers' compensation premium for an Arizona contractor with a $45,000 annual payroll and a rate of $8.50 per $100 of payroll.
Correct Answer
C) $3,825
($45,000 ÷ $100) × $8.50 = 450 × $8.50 = $3,825. Workers' compensation premiums are calculated per $100 of payroll.
Why This Is the Correct Answer
The workers' compensation premium formula is: (Annual Payroll ÷ $100) × Rate. Calculation: $45,000 ÷ $100 = 450 payroll units. 450 × $8.50 = $3,825. This is a straightforward application of the per-$100-of-payroll rate structure used by workers' compensation insurers.
Why the Other Options Are Wrong
Option A: $3,650
$3,650 does not result from the correct formula. It may stem from using a slightly different payroll base (e.g., $43,000) or a wrong rate. Always verify the calculation: 450 × $8.50 = exactly $3,825.
Option B: $3,950
$3,950 is also incorrect. It could result from rounding errors or misapplying the rate to a higher payroll figure. The correct answer requires precise arithmetic: no rounding at the intermediate step.
Option D: $4,250
$4,250 would result from applying the $8.50 rate to a payroll of $50,000 (500 × $8.50 = $4,250), not $45,000. This is a common error when candidates misread or confuse the payroll figure.
Memory Technique
Two-step formula: Step 1 — drop two zeros from payroll ($45,000 → 450). Step 2 — multiply by rate (450 × $8.50 = $3,825). Always divide by 100 first, then multiply. Never multiply the raw payroll by the rate directly.
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