Your company has 15 employees with a total annual payroll of $750,000. The workers' compensation rate for your classification is $8.50 per $100 of payroll. What is the annual workers' compensation premium?
Correct Answer
D) $63,750
Workers' compensation premium is calculated as (payroll ÷ 100) × rate. ($750,000 ÷ 100) × $8.50 = 7,500 × $8.50 = $63,750.
Why This Is the Correct Answer
The workers' compensation premium calculation follows a standard formula where the total payroll is divided by 100, then multiplied by the rate per $100 of payroll. With a $750,000 payroll and $8.50 rate per $100, the calculation is ($750,000 ÷ 100) × $8.50 = 7,500 × $8.50 = $63,750. This represents the annual premium the company must pay for workers' compensation coverage.
Why the Other Options Are Wrong
Option A: $127,500
This answer ($85,000) seems to result from incorrectly multiplying the payroll by the rate without dividing by 100 first, or from some other computational error in the formula application.
Option C: $85,000
This answer ($127,500) appears to be double the correct amount, suggesting an error where someone might have multiplied by the rate twice or failed to divide the payroll by 100 first.
Memory Technique
Remember 'Divide by 100, then Multiply' - think 'D100M' - you must convert the payroll to hundreds first, then multiply by the rate per hundred dollars.
Reference Hint
Look up workers' compensation insurance calculations in the Business and Finance Management chapter, specifically the section on insurance premium calculations and risk management.
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