Under Alabama workers' compensation law, a roofing contractor has a payroll of $280,000 with a rate of $8.50 per $100 of payroll. What is the annual premium?
Correct Answer
B) $23,800
Premium = ($280,000 ÷ $100) × $8.50 = 2,800 × $8.50 = $23,800
Why This Is the Correct Answer
The workers' compensation premium formula is: (Payroll ÷ 100) × Rate. Here: ($280,000 ÷ 100) × $8.50 = 2,800 × $8.50 = $23,800. This is the standard calculation method used across all states for determining WC premiums.
Why the Other Options Are Wrong
Option A: $33,600
$33,600 results from multiplying the payroll by a rate of $12 per $100, which is not the given rate. This error may arise from using the wrong divisor or rate in the formula.
Option C: $2,380
$2,380 is off by a factor of 10 — the result of dividing by 1,000 instead of 100. This is a common decimal placement error when working with the per-$100 rate.
Option D: $28,000
$28,000 appears to be $280,000 × 10%, an incorrect shortcut that ignores the actual rate of $8.50 per $100.
Memory Technique
Use the acronym PRH: Payroll ÷ 100 × Rate = How much you owe. The '100' is the anchor — the rate is always expressed per $100 of payroll.
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