nature wind climate change

Complying with prevailing wage and apprenticeship (PW&A) requirements under the Inflation Reduction Act (IRA) can significantly enhance the value of tax credits for qualifying energy projects, a five times multiplier. However, unlike Davis-Bacon, compliance with IRA prevailing wage and apprenticeship requirements is complex and challenging to verify. While Davis-Bacon is a labor law, PW&A falls under tax law, necessitating compliance submissions to the Internal Revenue Service (IRS) along with stringent, extended record-keeping requirements.

For contractors, this means continuously addressing noncompliance issues, paying penalties and maintaining extensive records. Manual record-keeping, such as using Excel, is not enough. Project owners and credit seekers for clean energy projects face significant risk and are looking to contractors to comply with PW&A requirements to maximize their tax credit value.

Let’s compare Davis-Bacon and prevailing wage and apprenticeship requirements

  Davis-Bacon
(Labor law)
IRA
(Tax law)

Qualifying projects

Projects greater than $2,000 that receive federal funding

Any size project, public or private-owned, that is seeking IRA energy credits

IRA is not a related act

Wage determination

Agency

  • Select proper wage determination
  • Establish start of construction (date of general contractor (GC) contract)
  • Request supplemental wage determinations

Taxpayer

  • Select proper wage determination
  • Establish start of construction (date of GC contract or tax guidance)

Taxpayer, contractor or subcontractor:

  • Request supplemental wage determinations to [email protected] including proposed rate and rationale

Prevailing wage (PW) compliance

All laborers and mechanics

Copeland Act requires weekly certified payroll

Post Davis-Bacon (DB) poster and wage determination on work site

Agency has responsibility for administration and enforcement of DB provisions

Conduct worker interviews

Conduct investigations

Submit enforcement reports to Department of Labor (DOL)

All laborers and mechanics, including those employed by taxpayer

Copeland Act does not apply. Requirement to pay prevailing wages is binding when credit is filed

Certified payroll recommended

Post wage determination on work site

Taxpayer has responsibility for administration and enforcement of DB provisions

Exception for projects less than one megawatt (1 MW) or projects that met ‘Begun Construction’ by 1/29/23

Apprenticeship requirements

Ratio requirement

Labor hour requirement (10-15%)

Participation requirement

Ratio requirement

PW Noncompliance

Contract payments may be withheld to satisfy the liability of the contractor for unpaid wages

Prime contractors have a contractual obligation to cover unpaid wages or liability

Potential debarment from future contracts

Cure as noncompliance is identified.

30-day grace period once taxpayer is aware if
  • Not more than 10% of payroll periods
  • Not greater than 2.5% less than PW

Employee paid back pay + interest (federal short-term rate + 6%)

$5,000/worker per calendar year taxpayer penalty for noncompliance

Intentional disregard

  • 3x back pay + interest
  • $10,000/worker per calendar year taxpayer penalty

Apprentice noncompliance

Ratio violation: apprentice paid full prevailing wage rate

Project labor hour: $50/unmet apprentice hour taxpayer penalty

Participation requirement: $50/unmet apprentice hour taxpayer penalty

Ratio violation: apprentice paid full prevailing wage rate plus interest

Alteration or repair

PW required for construction, alteration or repair

PW required for construction, alteration or repair through 5-10 year recapture period after placed in service

Recordkeeping

Agency retains for 3 years after prime contract is completed

Taxpayer maintains with tax records for 5-10 years

Audit

Audited by Department of Labor (DOL)

Audited by Internal Revenue Service (IRS)

EO 14026

Federal minimum wage applies

Not addressed

EO 13706

Paid sick leave for federal contractors applies

Does not apply

Our solution

To address these challenges, Baker Tilly and LCPtracker have developed a comprehensive solution for contractors and credit seekers. This end-to-end system ensures complete data-set coverage while protecting proprietary payroll data from customers. It establishes, monitors and documents compliance with prevailing wage, apprenticeship, and penalty requirements.

Laura Cataldo
Director
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