Stone Corporation has 25 employees and incurs total wages and salaries expense of $9,000,000 per year. The following table shows various payroll amounts as a percentage of this annual wage and salaries expense:
$\begin{array} { | l | r | }
\hline \text { Workers' compensation insurance } & 5 \% \
\hline \begin{array} { l }
\text { Social security and medical care taxes } \
\text { (employer's share) }
\end{array} & 7.65 \% \
\hline \begin{array} { l }
\text { Pension and other postretirement costs } \
\text { expense (paid by employer) }
\end{array} & 5 \% \
\hline \text { Salaries tax withheld } & 10 \% \
\hline \text { Unemployment taxes expense } & 2 \% \
\hline
\end{array}$
In addition, Stone provides group health insurance for its entire workforce. The cost of this insurance is $550 per month for each employee.

-Assume that the government implements a 10% payroll tax upon employers to finance health insurance for all citizens and residents. Stone will pay this tax instead of purchasing group health insurance. This will cause Stone's total annual payroll-related expenses to:

Question

Stone Corporation has 25 employees and incurs total wages and salaries expense of $9,000,000 per year. The following table shows various payroll amounts as a percentage of this annual wage and salaries expense:
$\begin{array} { | l | r | } 
\hline \text { Workers' compensation insurance } & 5 \% \
\hline \begin{array} { l } 
\text { Social security and medical care taxes } \
\text { (employer's share) }
\end{array} & 7.65 \% \
\hline \begin{array} { l } 
\text { Pension and other postretirement costs } \
\text { expense (paid by employer) }
\end{array} & 5 \% \
\hline \text { Salaries tax withheld } & 10 \% \
\hline \text { Unemployment taxes expense } & 2 \% \
\hline
\end{array}$
In addition, Stone provides group health insurance for its entire workforce. The cost of this insurance is $550 per month for each employee.

-Assume that the government implements a 10% payroll tax upon employers to finance health insurance for all citizens and residents. Stone will pay this tax instead of purchasing group health insurance. This will cause Stone's total annual payroll-related expenses to:

Quizplus · Accepted Answer

The 10% payroll tax will increase Stone's total annual payroll-related expenses by $900,000 (10% x $9,000,000). However, Stone will no longer need to pay for group health insurance, which costs $550 per month per employee. This will save Stone $165,000 per year (12 x $550 x 25 employees). Therefore, Stone's total annual payroll-related expenses will increase by $735,000 ($900,000 - $165,000).

Stone Corporation Has 25 Employees and Incurs Total Wages and Salaries