Tag: Prevailing Wage

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Alteration & Repair Under the Inflation Reduction Act: The Compliance Distinction Project Owners Can’t Afford to Ignore

Title graphic reading Alteration and Repair Under the IRA, with two panels contrasting Operations and Maintenance against Alteration and Repair.

As taxpayers continue to pursue enhanced clean energy tax credits under the Inflation Reduction Act (IRA), many have become familiar with the prevailing wage and apprenticeship requirements that apply during project construction. What remains less understood is how prevailing wage obligations apply after a facility has been placed in service.

The IRA expressly requires prevailing wage compliance not only during construction, but also during certain post-construction activities. Specifically, taxpayers seeking enhanced credit amounts must ensure that laborers and mechanics performing “the alteration or repair of such facility” are paid prevailing wages during the applicable compliance period. (Federal Register, TD 9998)

For owners, developers, EPC contractors, and operations teams, the challenge is determining when routine operations and maintenance (O&M) activities cross the line into alteration or repair work that may trigger prevailing wage obligations.

Why This Distinction Matters

The financial consequences of getting this classification wrong can be significant. For many IRA incentives, taxpayers that satisfy the applicable prevailing wage and apprenticeship requirements can receive a credit amount that is up to five times greater than the otherwise applicable base credit.

At the same time, taxpayers that fail to satisfy prevailing wage requirements may be required to make correction payments, pay penalties, and work through statutory cure procedures to preserve eligibility for enhanced credit values.

As a result, understanding whether post-construction work constitutes routine maintenance or a covered alteration or repair is an important compliance consideration.

Some Interpretation Background Between the IRS and DBA

One of the most important observations from Treasury’s final regulations is that the agencies acknowledged the challenges of applying Davis-Bacon concepts traditionally used in federal contracting to a tax-credit framework.

In the preamble to the final regulations, Treasury and the IRS explained that they would incorporate only those Davis-Bacon requirements that are:

relevant for the purposes of section 45(b)(7)(A) and the intent of the IRA, and necessary for, and consistent with, sound tax administration.

Federal Register, TD 9998

The agencies further noted that they must:

take a reasonable approach to interpret a Code provision that references a Federal law applicable to Federal contracts.

For taxpayers and contractors, this language demonstrates that prevailing wage compliance under the IRA often requires a fact-specific analysis grounded in both IRS and Davis-Bacon principles.

What Does the IRS Mean by “Construction, Alteration, or Repair”?

The IRS has specifically addressed the question of what constitutes “construction, alteration, or repair” for purposes of the IRA prevailing wage requirements through its published guidance and FAQs.

Notably, the statute references “the construction of such facility” and “the alteration or repair of such facility.”

What the statute does not specifically reference is routine operations and maintenance. That omission is where much of the compliance analysis begins.

Operations & Maintenance vs. Alteration & Repair

Neither the IRA statute nor the IRS’s prevailing wage regulations provide an exhaustive list of activities that automatically qualify as operations and maintenance (O&M) or alteration and repair (A&R). As a result, taxpayers often look to Davis-Bacon authorities and Department of Labor guidance for interpretive context.

Importantly, the examples below are not definitive legal determinations and should not be interpreted as IRS-approved classifications. Rather, they reflect factors discussed in Department of Labor guidance that may help inform a project-specific analysis.

Activities Often Associated with Routine Maintenance

The Department of Labor has stated that:

Maintenance work that is routinely and regularly performed to keep the building or work functioning in the same condition is not considered construction.

Consistent with that principle, activities such as the following may be indicative of routine maintenance when performed to preserve existing operating conditions:

  • Routine inspections and monitoring of equipment performance
  • Preventive maintenance programs performed on a recurring schedule
  • Cleaning and servicing activities intended to maintain existing functionality
  • Minor upkeep work completed repeatedly over time as part of normal facility operations

The Department of Labor has further indicated that maintenance work is often characterized by activities that are “performed continuously/repetitively over time,” “completed comparatively quickly,” and intended to maintain a facility “in its existing condition.”

Activities That May Suggest Alteration or Repair

By contrast, Department of Labor guidance explains that:

Restoration or improvement of a facility by modifications to the facility’s components, systems, or materials is considered to be alteration or repair.

The guidance also notes that alteration or repair work will generally “improve the building or work, either by fixing something that is broken or by improving upon the building or work’s existing condition.”

Based on those principles, activities such as the following may warrant closer review:

  • Major component replacement projects
  • Equipment refurbishments or overhauls that restore or improve facility functionality
  • Modifications to facility systems or materials intended to improve efficiency, capacity, usefulness, or performance
  • Corrective work addressing specific failures, defects, or broken equipment
  • Work requiring skills commonly associated with construction trades

The Department of Labor identifies additional factors suggesting alteration or repair, including whether the work:

  • Corrects “individual problems or defects as separate and segregable incidents,”
  • Improves a facility’s “structural strength, stability, safety, capacity, efficiency, or usefulness,” or
  • Involves skills “typical of one or more construction trades.”

Important Caveat

Ultimately, neither the IRA nor current IRS guidance establishes a simple checklist for determining whether a particular activity constitutes maintenance or alteration and repair. Classification is often highly dependent on the scope, purpose, frequency, and technical nature of the work being performed. Taxpayers should evaluate significant post-construction activities based on the specific facts and circumstances of the project and should consult qualified legal, tax, and prevailing wage advisors when uncertainty exists.

Conclusion

As guidance continues to develop, taxpayers should carefully evaluate significant post-construction activities and document the basis for their classifications to help mitigate compliance risk and preserve enhanced credit eligibility. If questions arise regarding the application of prevailing wage requirements to your project, our team is available to provide experienced guidance and support. Access expert help and reach out today.

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California SB 35: What Contractors Need to Know About Prevailing Wage & Compliance

Multifamily housing under construction with a tower crane, alongside a completed apartment building.

California Senate Bill 35 (SB 35) reshaped the approval process for multifamily housing developments by introducing a streamlined, ministerial approval pathway for qualifying projects. While the bill is primarily viewed through a housing development lens, it carries significant compliance implications for contractors, especially those operating in the prevailing wage space.

Below is a practical guide to SB 35 focused on what contractors, subcontractors, and compliance teams need to know to stay compliant and audit ready.

Important Update: SB 35 Was Extended and Amended by SB 423

Before diving into compliance details, it’s worth flagging a development that changes how this law should be understood today: SB 35 is no longer a standalone statute operating on its original 2017 terms.

In October 2023, Governor Newsom signed SB 423 (Wiener), which took effect January 1, 2024, and substantially amended the streamlined ministerial approval process originally created by SB 35 (codified at Government Code § 65913.4). Some jurisdictions and planning departments now refer to the process as “SB 423 (formerly known as SB-35).”

Key changes contractors should know about:

  • The sunset date was extended a decade. SB 35 was originally set to expire on January 1, 2026. SB 423 pushed that expiration to January 1, 2036.
  • The old blanket labor standard was replaced with a tiered structure. Previously, SB 35 applied a single objective standard requiring prevailing wage and use of a skilled and trained workforce across covered projects. SB 423 restructured this into size- and height-based tiers (detailed in the Skilled and Trained Workforce section below), rather than a one-size-fits-all requirement.
  • A small-project exemption was added. Projects of 10 units or fewer that are not otherwise a public work are exempt from the prevailing wage, apprenticeship, and healthcare expenditure requirements entirely.
  • The coastal zone exclusion was removed, expanding the geographic reach of projects eligible for streamlined approval.

For contractors and compliance teams, the practical takeaway is this: prevailing wage still applies broadly, but which additional labor standards apply (skilled and trained workforce, apprenticeship utilization, healthcare expenditures) now depends on specific project size and building height thresholds rather than a blanket rule. The sections below reflect the current SB 423-amended framework.

What Is SB 35?

SB 35 allows qualifying multifamily housing projects to bypass discretionary approvals and move through a streamlined, by-right approval process if they meet objective zoning and affordability requirements.

Key features include:

  • Ministerial (non-discretionary) approvals
  • Strict timelines for local agency review (60–90 days depending on project size)
  • Requirements tied to affordability thresholds and housing production goals
  • Applicability to jurisdictions that fall behind on regional housing needs (RHNA)

Prevailing Wage Requirements Under SB 35

SB 35 explicitly ties streamlined approval eligibility to prevailing wage compliance.

When Prevailing Wage Applies

Under SB 35, developers must certify one of the following:

  • The project is a public work, OR
  • All construction workers will be paid at least the general prevailing wage for the applicable trade and location

This applies even when the project is privately funded.

Contractor Responsibilities

For contractors and subcontractors, this means:

  • Paying DIR-determined prevailing wage rates
  • Ensuring apprentices are paid the correct apprentice wage rates
  • Flowing prevailing wage requirements down to all subcontractor tiers
  • Including prevailing wage clauses in all contracts
  • Skilled and Trained Workforce requirements (if applicable)

Failure to comply can lead to:

  • Civil wage and penalty assessments
  • Liquidated damages
  • Enforcement actions by the California Labor Commissioner

Certified Payroll & Recordkeeping Requirements

SB 35 reinforces standard California Labor Code §1776 recordkeeping requirements.

Contractors must maintain and verify certified payroll records, make records available for inspection upon request, and retain documentation sufficient to support reported wages and classifications.

Best Practice: Go Beyond CPRs

As seen in similar compliance frameworks, certified payroll alone is not sufficient for audit protection. Contractors should also maintain:

  • Timecards and daily job logs
  • Worker classification documentation
  • Fringe benefit contribution records
  • Fringe benefit annualization calculations
  • Apprenticeship agreements and ratios
  • Subcontractor compliance documentation

Without these, contractors risk exposure during Labor Commissioner investigations, worker complaints, and potential audits.

Skilled and Trained Workforce (STW) Requirements

Under the pre-2024 version of SB 35, a single objective standard applied broadly across covered projects. SB 423 replaced that with a tiered labor standard based on project size and building height:

  • Projects of 50 or more housing units must meet apprenticeship-utilization and healthcare expenditure requirements for construction craft employees, either directly, or by being signatory to a collective bargaining agreement that already requires both. Each construction contractor must also maintain and verify payroll records pursuant to Section 1776 of the Labor Code, and submit payroll records directly to the Labor Commissioner at least monthly in a format prescribed by the Labor Commissioner in accordance with subparagraph (A) of paragraph (3) of subdivision (a) of Section 1771.4 of the Labor Code.
  • Buildings taller than 85 feet must utilize a skilled and trained workforce and hit certain percentage goals, or face penalties for non-compliance.
  • Projects of 10 units or fewer where the project is not otherwise a public work are exempt from the prevailing wage, apprenticeship, and healthcare expenditure requirements entirely.

What This Means

Rather than assuming a flat STW threshold applies, contractors need to check a given project against its unit count and building height to determine which labor standards apply. A 12-unit, 3-story project and a 200-unit high-rise can trigger very different obligations under the same law. All subcontractors on a covered project are still required to comply with whichever standards apply.

Reporting Obligations

Developers (and often contractors supporting them) must submit monthly compliance reports to the local jurisdiction and demonstrate adherence to STW requirements.

Failure to comply may result in:

  • $10,000/month penalties for missing reports
  • $200/day per non-compliant worker penalties

Subcontractor Compliance: Flow-Down Liability

As with other public works frameworks, SB 35 places responsibility on prime contractors to enforce compliance across all tiers. This includes collecting certified payroll from subcontractors, verifying wage rates and classifications, and ensuring proper contract language is in place.

If a subcontractor fails to comply, liability may flow upstream, particularly where oversight procedures are lacking.

Apprenticeship Requirements

SB 35 aligns with broader California apprenticeship requirements:

  • Proper apprentice-to-journeyman ratios must be maintained
  • Apprentices must be registered in approved programs
  • Wage rates must match applicable prevailing apprentice rates
  • Payment of training amount to applicable program or CAC

Noncompliance in this area is a frequent audit trigger and often overlaps with STW requirements.

Interaction with Other Regulations

SB 35 projects may also intersect with:

California Prevailing Wage (DIR)

Core requirement for all covered work. Includes:

  • Use of wage determinations
  • Public works enforcement framework
  • CPR and recordkeeping obligations

Davis-Bacon (Federally Funded Projects)

If federal funding is involved:

  • Federal prevailing wage requirements may apply concurrently
  • Dual compliance (state + federal) may be required

Section 3 (HUD-Funded Projects)

If HUD funding is used:

  • Hiring and contracting goals for low-income workers
  • Additional reporting and documentation requirements

Project Labor Agreements (PLAs)

If a PLA is in place, some enforcement mechanisms (e.g., payroll record provisions) shift to arbitration frameworks instead of statutory enforcement.

Audit & Enforcement Risk

Scrutiny under SB 35 enforcement can come through the following forms:

  • Public reporting requirements
  • Streamlined approvals tied to compliance certifications
  • Monthly workforce reporting (STW)

Common audit triggers include:

  • Payroll discrepancies
  • Worker complaints
  • Missing documentation
  • Misclassification issues

Penalties can include:

  • Back wages
  • Interest and fines
  • Debarment from future public works

Key Takeaways for Contractors

Contractors should approach these projects with a compliance-first strategy:

  1. Treat all SB 35 projects as high-compliance work. Even if privately funded, prevailing wage can apply.
  2. Strengthen recordkeeping systems. Certified payroll is not enough. Maintain full supporting documentation.
  3. Audit subcontractors proactively. Do not assume compliance. Verify it through every party.
  4. Prepare for Skilled & Trained Workforce tracking. Ensure workforce eligibility and reporting systems are in place.
  5. Align contracts with compliance requirements. Include all mandated language and obligations upfront.

Final Thoughts

Compliance under SB 35 requirements layers prevailing wage, workforce requirements, and reporting obligations. Contractors who succeed under SB 35 will be those who build compliance into project workflows early, maintain a well-documented paper trail of proof of compliance, and actively manage subcontractor risk.

As enforcement continues to evolve, partnering with experienced prevailing wage consultants can help ensure your projects stay compliant from bid to closeout. Connect with us to learn how you can get assistance in the compliance process.

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The AI Data Center Boom Meets Prevailing Wage: A State-by-State Look

Rows of black server racks in a modern data center, with a lit corridor running between them.

As the power of AI exponentially scales, data centers go up across the country to house the infrastructure needed for this technology. States have taken notice, and a growing number are attaching strings to that growth: incentives to attract developers, labor standards to protect the workforce doing the building, or both. In a handful of states, those labor standards now include prevailing wage, and in some cases, apprenticeship requirements.

If your firm works in data center construction, or is considering it, here’s what’s already law, what’s moving through statehouses right now, and how to think about compliance in a sector that didn’t traditionally think of itself as “public works.”

Why Data Centers, and Why Now

Data centers are not new, but the scale of what’s being built is. A single large-scale AI training facility can draw as much electricity as a mid-sized city, and utilities, grid operators, and state legislatures are all racing to catch up. That’s created two distinct regulation types in state legislatures:

  1. Incentive-driven bills, aimed at attracting data center investment (tax exemptions, streamlined permitting, dedicated electricity rate structures).
  2. Labor-standards bills, aimed at ensuring that the construction workforce building these facilities (often on an accelerated, high-dollar timeline) is paid fairly and trained properly.

Some legislation does both at once: offering a tax benefit or rate structure in exchange for labor commitments on the construction side. That pairing is exactly what’s driving the prevailing wage trend below.

If you’re already tracking clean energy prevailing wage triggers under the Inflation Reduction Act, this will feel familiar. Data centers are becoming the AI-era version of the same policy pattern: big federal or state incentive, paired with a labor standards string attached.

States That Have Passed Data Center Prevailing Wage Requirements

California — SB 978

California’s SB 978 takes a “rate structure plus labor standards” approach. The bill requires the California Public Utilities Commission (PUC) to create a special electricity rate structure for large data centers, defined as facilities primarily processing digital information with a peak demand of at least 75 megawatts. This ensures these facilities pay for the infrastructure upgrades their power demand requires rather than shifting those costs onto other ratepayers. In exchange, large data centers must also contribute to funding new zero-carbon energy resources, and their construction projects must meet specific labor requirements, including paying prevailing wages and using a skilled and trained workforce — effectively treating qualifying data center construction as a public works project. The bill also folds data centers’ impact into the state’s existing tracking toward its 100% clean electricity goal by 2045.

For firms already managing California prevailing wage compliance on public works or renewable energy projects, this extends a familiar framework: skilled and trained workforce documentation, certified payroll, and DIR-aligned prevailing wage rates into a new project type.

Minnesota — SSHF16

Minnesota’s approach again pairs a tax incentive with a labor standard. Under SSHF16, “qualified large-scale data centers” were added to the state’s sales tax exemption for purchases of enterprise information technology equipment and computer software, effective for purchases made after June 30, 2025. In exchange, laborers or mechanics performing work to construct or refurbish qualified large-scale data centers must be paid the prevailing wage rate for their work. See our Minnesota prevailing wage compliance page for the state’s existing framework administered by the Department of Labor and Industry (DLI).

States With Data Center Prevailing Wage Bills In Progress

New Jersey — AB 3611

New Jersey’s Assembly Bill 3611 applies prevailing wage directly to data center construction, without pairing it to a separate incentive program. The bill requires that workers employed in the construction of a data center project be paid not less than the prevailing wage rate for their craft or trade, as determined by the Commissioner of Labor and Workforce Development, for data center construction projects with an electrical capacity of five megawatts or greater annually after construction.

Firms doing construction work in New Jersey should compare this threshold carefully against project specs. Our New Jersey prevailing wage compliance page covers the state’s existing Prevailing Wage Act framework that this bill builds on.

Pennsylvania — HB 2061

Pennsylvania’s HB 2061 ties compliance to an affirmation requirement rather than a size threshold. For construction, expansion, rehabilitation, renovation, or site work of a computer data center beginning on or after July 1, 2025, the bill would require an affirmation. This affirmation must be signed by the authorized executive representing the owner or operator and note that all contractors and subcontractors will pay workers not less than the prevailing minimum wage and benefit rates for each craft or classification, as determined and enforced by the Department of Labor and Industry, consistent with the Pennsylvania Prevailing Wage Act (Act of Aug. 15, 1961, P.L. 987, No. 442). This structure puts direct accountability on the owner/operator, not just the contractors performing the work. See our Pennsylvania prevailing wage compliance page for background on how the state’s existing Prevailing Wage Act operates.

Because these two bills are still in progress, their thresholds, effective dates, and even their prevailing wage provisions could change before passage — or the bills could stall entirely. Always confirm current bill status and text directly through the state legislature’s website before relying on it for a specific project.

What This Means for Contractors and Developers

A few patterns are worth flagging as this trend develops:

  • Thresholds vary widely. California’s trigger is a 75 MW peak demand; New Jersey’s proposed threshold is 5 MW of annual electrical capacity. A project that clears one state’s bar for prevailing wage might not come close in another. Don’t assume a single company-wide policy will work across state lines.
  • Prevailing wage and apprenticeship are increasingly bundled. Across several existing prevailing wage types and incentives already established in federal clean energy tax credits, prevailing wage and apprenticeship requirements may travel together to unlock the largest incentive.
  • Some bills reach owners/operators directly, not just contractors. Pennsylvania’s affirmation requirement puts the compliance obligation on the entity commissioning the project, which changes who needs to be at the table when compliance planning starts.
  • Data centers are being treated as “public works” even when privately financed. California’s SB 978 and Minnesota’s SSHF16 both extend prevailing wage to projects that aren’t publicly funded in the traditional sense. The trigger is the incentive or rate structure the facility receives, not government ownership of the project.

Best Practices for Data Center Construction Compliance

  1. Identify your triggers early, per state. Before bidding or scoping a data center project, confirm whether the state has an applicable law and what its size/capacity threshold is — megawatt peak demand, kilowatt capacity, or annual usage can all serve as triggers, and they aren’t interchangeable.
  2. Build classification and wage determination review into pre-construction. As with any prevailing wage project, confirm the applicable craft classifications and current wage determinations before finalizing labor budgets. Rates can shift for a myriad of reasons, ranging anywhere from changes per publication cycle to specific periods in the year.
  3. Plan for apprenticeship utilization where required. Start engaging registered apprenticeship programs early if applicable, and document good-faith efforts if you encounter denials or non-responses.
  4. Confirm who bears the compliance obligation. Determine whether the law places the burden on the contractor, subcontractor, or the project owner or operator (as in Pennsylvania). This affects contract language, certifications, and who needs sign-off before construction begins.
  5. Maintain certified payroll and recordkeeping from day one. Data center construction timelines are often compressed and high-dollar; retrofitting compliance documentation after the fact is far harder than building it in from the start.
  6. Track legislative developments continuously. This is a fast-moving area. New states are introducing similar bills regularly, and existing bills can be amended as they move through committee. What applies to your project today may look different by the time you break ground.
  7. Loop in compliance experts before you bid. Given how much thresholds and mechanisms vary state to state, a pre-bid compliance review can prevent costly missteps once construction is underway.

Conclusion

Data centers are quickly becoming one of the most active construction sectors in the country, and state legislatures are increasingly treating them the way they’ve long treated other large public-facing infrastructure: with labor standards attached. Whether your state has already passed a prevailing wage requirement for data centers, or has a bill working its way through committee right now, the smart move is to build compliance into your planning early, not after the fact.

Have a data center project in the pipeline and want to know whether prevailing wage or apprenticeship requirements apply? Connect with our team to review your project’s state-specific obligations and make sure your compliance strategy is airtight before you break ground.

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Why Supporting Documentation is Key to Compliant Prevailing Wage Projects

Maintaining supporting documentation is the foundation of prevailing wage compliance. For all those working on a prevailing wage project, including (but not limited to), EPCs, contractors, subcontractors, and engineering firms, proper recordkeeping not only protects companies against costly penalties but also ensures eligibility for lucrative public works projects across federal and state programs.

Most know that maintaining payroll records with proper prevailing wage payments is necessary to demonstrate compliance. However, certified payroll reports are only the tip of the iceberg. They summarize wages and classifications, but they don’t stand alone. In the face of a governmental audit, regulators will dig deeper, demanding the supporting documentation that validates every line item. Without it, even unintentional discrepancies can trigger penalties, withheld payments, or disqualification from incentive programs.

Infographic: Prevailing wage compliance is like an iceberg. Certified payroll reports sit above the waterline, while fringe benefit documentation, worker classification records, apprenticeship documentation, time cards and daily logs, subcontractor compliance records, and a supporting audit trail lie beneath.

Why Documentation Matters in Prevailing Wage Compliance

Think of documentation like the seatbelt in your car. Most of the time, you don’t feel its importance. The belt’s just there, quietly strapped across your chest. You might even think, “I’m careful, I don’t really need it.” But the moment an accident happens, whether it’s your fault or not, that seatbelt becomes the single most important thing protecting you from serious harm.

Supporting documentation in prevailing wage compliance works the same way. Day-to-day, it may feel like extra paperwork, especially when certified payroll reports are filed correctly. But if an audit occurs, triggered by a small discrepancy or an unintentional error, those records become your seatbelt. They’re the proof that shields your company from penalties and damage.

What paperwork do I need to prove prevailing wage compliance?

Certified payroll reports are the headline requirement, but they rely on a foundation of supporting records. Examples include, but are not limited to:

  • Fringe Benefit Records: Proof of contributions to health, pension, and training funds.
  • Worker Classification Logs: Documentation that employees are properly classified under wage determinations.
  • Apprenticeship Agreements: Evidence of compliance with apprenticeship ratios and training requirements.
  • Timecards and Daily Logs: Records that validate hours reported on certified payroll.
  • Subcontractor Compliance Records: Documentation showing that lower-tier subcontractors also meet prevailing wage obligations.

These documents are what auditors use to verify the accuracy of certified payroll reports. Without them, the report itself is just numbers on paper.

Getting Assistance with Monitoring Recordkeeping

The examples listed above help cover a big piece of the story, but the list is not exhaustive. The bigger key is ensuring that what is reported on this documentation is all verifiable across each other. When working on a project with several employees for several weeks, months, or years on end, this can be a challenging feat for firms to keep up with. Here, our team steps in to alleviate this burden to complete the review for you. We study prevailing wage and serve to protect firms in the industry from potential penalties that arise in prevailing wage law by supplying our years of experience, technology, and expert team. If you’re interested in seeking assistance with prevailing wage requirements, don’t hesitate to contact our team.

Conclusion

For all firms completing work on prevailing wage projects, compliance can come down to building a trackable paper trail that supports certified payroll reports and proves compliance under scrutiny. No matter what prevailing wage regulation is applicable on a project, supporting documentation is the seatbelt that protects your business in the event of an audit.

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Prevailing Wage & Clean Energy in NY: What Labor Law §224-d Means for Developers & Contractors

Performing construction in New York’s clean energy market? As New York’s clean energy market matures, developers and contractors are encountering a growing set of labor standards. One of the most important, and increasingly relevant, is Labor Law §224-d, a statute that applies prevailing wage requirements to certain renewable energy projects. This blog focuses specifically on §224-d and how wage standards are evolving in the state’s clean energy sector.

How Has Labor Law §224-d Changed?

New York Labor Law §224-d is a state statute that requires construction workers on certain renewable energy projects to be paid prevailing wages, even if the projects aren’t traditional “public works.” In 2022, New York passed legislation, Assembly Bill A.9598 and Senate Bill S.8648, that amended Labor Law §224-d to expand the definition of a “covered renewable energy system.” These bills lowered the system size threshold from 5 megawatts to 1 megawatt or more and clarified that REC procurement by or for a public entity is sufficient to trigger prevailing wage requirements. This expansion significantly broadened the law’s reach, especially for mid-size clean energy projects.

What Triggers Labor Law §224-d?

As amended, Labor Law §224-d requires that workers on certain renewable energy projects be paid prevailing wages, as determined by the New York State Department of Labor (NYSDOL). But unlike traditional public works laws, §224-d is tailored to clean energy and applies when:

  1. The project involves a renewable energy system of 1 megawatt or more, and
  2. The project includes the procurement of renewable energy credits (RECs) by a public entity (or a third party acting on its behalf, such as NYSERDA).

If both conditions are met, the project is considered a “covered renewable energy system” and prevailing wage requirements apply under Article 8 of the Labor Law.

How Labor Law §224-d Growth Affects Developers and Contractors

According to NYSDOL’s July 2024 enforcement guidance, distributed renewable energy systems (like community solar) that are 1 MW or larger (Climate and Community Protection Act, A.9598/S.8648, 2022) and transfer RECs (Renewable Energy Certificates) to investor-owned utilities will now be considered “covered renewable energy systems.” This is because, under a 2025 Public Service Commission order, those RECs will ultimately be purchased by NYSERDA — a public entity whose involvement, even indirectly, is enough to trigger prevailing wage requirements under §224-d.

In other words, once NYSERDA becomes the end buyer of those RECs, regardless of the project’s funding source, the project is treated as publicly supported for labor compliance purposes.

This means that many mid-size projects entering construction in 2025 are now subject to prevailing wage, even if they aren’t directly funded by public dollars.

Who is Affected?

  • Developers of solar, wind, thermal, or offshore wind supply chain infrastructure
  • General contractors and subcontractors performing construction work on qualifying systems
  • Project teams working with NYSERDA or other public REC procurement programs

Even if your project is privately financed, it may still fall under §224-d if RECs are sold to a public buyer.

Prevailing Wage Responsibilities

Under New York Labor Law Article 8, including §224-d, contractors and subcontractors working on covered projects must:

  • Pay workers the prevailing wage and supplemental benefits for their specific trade and locality.
  • Maintain certified payroll records showing hours worked, job classifications, and wages paid.
  • Post the wage schedule at the job site in a visible location.
  • Cooperate with audits or investigations by the NYS Department of Labor (NYSDOL) or, in NYC, the Comptroller’s Office.

These requirements apply to laborers, mechanics, and tradespeople.

Exceptions to the Law

The Bureau of Prevailing Wage shall not enforce the prevailing wage requirements of §224-d when:

  • The project was solicited, contracted for, or work began, prior to October 1, 2021
  • The system has a capacity between 1 and 5 megawatts and was solicited, contracted for, or work began prior to July 5, 2022
  • The system has a capacity of less than 1 megawatt and is not a thermal energy network
  • The construction work is performed under a labor peace agreement, project labor agreement, or an enforceable agreement between an owner or contractor and a bona fide building and construction trade labor organization.

Conclusion

As clean energy construction expands across New York, prevailing wage requirements under Labor Law §224-d are increasingly shaping project planning and execution. With more mid-size systems now falling under its scope, especially those involving REC procurement by public entities like NYSERDA, contractors and developers must remain diligent in identifying when the law applies, understanding the appropriate prevailing wages, and maintaining proper records to stay compliant throughout the build.

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Illinois Shines & CEJA: Beyond the Basics of Prevailing Wage Compliance

top aerial of engineer men inspects construction of solar cell panel or photovoltaic cell at roof top. Industrial Renewable energy of green power. factory at urban area. worker working on tower roof.

The Climate and Equitable Jobs Act (CEJA) and the Illinois Shines program have reshaped renewable energy projects in Illinois, requiring contractors to pay prevailing wages and meet equity standards. For an introduction to CEJA, the Adjustable Block Program, and the Minimum Equity Standard, visit this blog for the full scope. Here, we address guidance on the practical compliance questions that arise during project execution. 

Table of Contents

What documentation do I need to prove prevailing wage compliance?

Certified payroll reports are required, but they are only the starting point. Contractors must also maintain: 

  • Fringe benefit records: Proof of contributions to health, pension, and training funds. 
  • Itemized Wage Statements: Documentation to show rates of pay for straight time and overtime, along with deductions. 
  • Timecards and daily logs: Documentation that validates hours reported.
  • Worker classification logs: Evidence that employees are properly classified under county-specific wage determinations. 
  • Apprenticeship agreements: Records showing compliance with apprenticeship ratios. 
  • Subcontractor compliance records: Documentation verifying that lower tier subcontractors also meet prevailing wage obligations. 

Without these supporting documents, certified payroll reports alone will not withstand a governmental audit.

Are all subcontractors required to comply with prevailing wage requirements?

CEJA and Illinois Shines classify projects as “public works,” meaning all tiers of subcontractors must comply. All individual contractors are responsible for ensuring subcontractor compliance. These responsibilities include: 

  • Collecting certified payrolls from subcontractors. 
  • Auditing subcontractor records for accuracy. 
  • Including compliance clauses in subcontract agreements. 

Contractors that are not informed of the prevailing wage requirements on public works projects by a public body are still liable for the difference between the amount paid and the prevailing wage. If a contractor fails to notify a subcontractor of prevailing wage requirements, the contractor becomes liable for interest, penalties, or fines assessed by the IDOL (Illinois Department of Labor). The subcontractor is still, however, liable for paying the proper prevailing wage rate. 

What counts as a valid fringe benefit contribution under Illinois Shines & CEJA requirements?

Under Illinois law, contributions to health insurance, retirement plans, and trainingcontributions to registered apprenticeship programs qualify. These must be documented separately from wages. 

It is vital that contractors only take credit up to the amount listed in each column on the wage determination. For example, if a Carpenter classification has a $9.95 amount in the “H/W” (Health and Welfare) column, then $9.95 is the maximum amount the contractor can take credit for. So, even if a contractor is paying $15.00 in health insurance, they can only take credit for up to $9.95 for that classification. 

Prevailing wage rates are county-specific and updated monthly by the Illinois Department of Labor. Contractors must monitor updates throughout the project to avoid underpayment. Learn more about fringe benefits here. 

Apprenticeship and Training Requirements

CEJA emphasizes workforce development. Contractors must comply with apprenticeship utilization requirements, which means: 

  • Documenting ratios of apprentices to journeymen. 
  • Maintaining agreements with registered apprenticeship programs. • Ensuring apprentices are paid prevailing wage rates for their classification. 

The Minimum Equity Standard (MES)

Section 1‑75(c‑10) of the Illinois Power Agency Act requires the Illinois Power Agency (IPA) to create an Equity Accountability System, which includes the Minimum Equity Standard. 

The MES sets a required percentage of your project workforce that must be made up of Equity Eligible Persons (EEPs). This applies to: 

  • Approved Vendors and Designees participating in Illinois Shines
  • Companies bidding into Indexed REC procurements for utility‑scale renewable projects

The goal is simple: ensure that the clean energy boom in Illinois creates opportunities for workers who have historically been left out of these industries. 

Who Counts as an Equity Eligible Person (EEP)?

CEJA defines four categories of workers who qualify as EEPs. A worker is considered an EEP if they meet any of the following: 

1. Graduates or participants of state‑supported clean energy training programs 

This includes programs such as: 

  • Clean Jobs Workforce Network Program 
  • Clean Energy Contractor Incubator Program 
  • Illinois Climate Works Pre‑Apprenticeship Program 
  • Returning Residents Clean Jobs Training Program 
  • Clean Energy Primes Contractor Accelerator Program 
  • Solar training pipeline and multicultural jobs programs created under FEJA 

2. Individuals who are or were part of the foster care system 

3. Individuals who were formerly incarcerated 

4. Residents of an Equity Eligible Investment Community 

What Are the Audit and Enforcement Risks?

Contractors often wonder: What triggers an audit? Common triggers include:

  • Worker complaints.
  • Discrepancies in certified payroll reports. 
  • Random audits by the Illinois Department of Labor or local enforcement offices. 

Penalties for non-compliance include fines, withheld incentive payments, and potential debarment from future public works projects. 

How Are Incentives Affected by Compliance?

Prevailing wage compliance is directly tied to incentive eligibility under Illinois Shines. Failure to comply can result in: 

  • Loss of renewable energy credits (RECs). 
  • Disqualification from incentive payments. 
  • Reputational damage that impacts future bids. 
  • Ineligibility to participate in the Adjustable Block Program if found to no longer be an Approved Vendor. 

Conclusion

CEJA and Illinois Shines are transforming Illinois’ renewable energy landscape, but compliance is more than filing certified payroll reports. Contractors must maintain supporting documentation, monitor subcontractor compliance, track fringe benefits, and prepare for audits. With enforcement increasing, expert guidance is indispensable. 

Alliant Consulting bridges the gap between compliance management and contractor confidence, helping firms close projects with the assurance that prevailing wage obligations have been met. Partner now to secure assistance on your projects.

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Clean Incentives: What Canada Can  Learn from the US Playbook on  Wage Compliance and Clean  Technology

clean incentives podcast overview

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Introduction

Clean technology projects are booming in North America, and with them come new labour requirements tied to valuable tax incentives. Our Business Development Manager, Taylor Gant, recently joined Brenden Sigalet on the Bennett Jones LLP’s Clean Incentives podcast to discuss how prevailing wage compliance is shaping the  industry in both the U.S. and Canada.

Watch this clip where Taylor explains why payroll verification goes beyond the numbers. Clean Incentives is a production of the Bennett Jones Business Law Talks Podcast and is shared here with permission.

Key Highlights

  • Payroll is more than paperwork
    Taylor explained that certified payroll is only a synthesis of many documents. Mistakes happen, so compliance requires checking cheque stubs, timesheets, and fringe remittances to ensure workers are truly paid what they’re owed.
  • Lessons from the U.S. Inflation Reduction Act
    The U.S. tied prevailing wage and apprenticeship requirements to clean energy tax credits under the IRA. Responsibility often falls on the taxpayer claiming credits, creating new challenges for contractors and developers.
  • Differences between the US IRA and Canada ITC
    Canada’s rules look similar at a high level but differ in key ways:
    apprenticeship percentages (10% vs. 15% in the U.S.), stricter “reasonable effort” timelines, and reliance on collective labour agreements.
  • Prevailing wage documentation pushback
    Contractors sometimes resist providing detailed records, especially when requirements weren’t written into contracts. Best practice is to involve legal, tax, and compliance teams early to ensure agreements cover documentation needs.
  • CT ITC penalties for non-compliance
    Both U.S. and Canadian systems impose financial penalties and back pay obligations. In serious cases, negligence can escalate fines dramatically or reduce the value of tax credits.

Why This Matters

At Alliant Consulting, our role is to help clients navigate these evolving compliance landscapes. By auditing payroll before regulators do, we ensure contractors and developers can claim incentives confidently while protecting workers’ rights.

As clean technology projects accelerate, compliance is becoming a cornerstone of both financial success and industry integrity. To learn more about how we support clean technology projects, contact our team or listen to the full podcast episode hosted by Bennett Jones LLP.

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The OBBBA Notice on Inflation Reduction Act Prevailing Wage Requirements

Image showing lawmakers discussing the OBBBA notice on prevailing wage requirements

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Introduction

The Inflation Reduction Act (IRA) introduced transformative clean energy tax incentives, including bonus credits for projects that meet specific labor standards. Among these, the prevailing wage and apprenticeship requirements have become central to maximizing certain tax benefits. Recently, the One Big Beautiful Bill Act (OBBBA) introduced new updates (Notice 2025-42) on August 15, 2025 that reshape how these labor rules apply, specifically under Sections 45Y and 48E. This blog explores the original IRA framework, its impact on taxpayers, and the nuanced changes brought by Notice 2025-42.

Prior IRS Guidance: Beginning of Construction – A Quick Overview

Under the IRA, prevailing wage and apprenticeship requirements must be met to qualify for enhanced tax credits. Failure to comply may result in penalties and the loss of bonus credit eligibility. For a full debrief on how this affects projects, visit our YouTube series.

The credits directly addressed in the OBBBA BOC notice include:

  • Clean Electricity Production Credit (§45Y)
  • Clean Electricity Investment Credit (§48E)

The prevailing wage requirement mandates that workers be paid at least the wage rates set by the U.S. Department of Labor.

Under the proposed IRS guidance, the beginning of construction date determines if prevailing wage and apprenticeship (PWA) requirements apply to the construction of a qualified facility. Under the Beginning of Construction (BOC) Exception, a qualified facility which began construction prior to January 29, 2023 is eligible for the increased credit amounts without meeting PWA requirements.

The IRA initial guidance (87 FR 73580) specified that the BOC date could be determined under the following methods:

  • The Physical Work Test
    • Verifies that “physical work of a significant nature” has begun. This takes into account work performed by the taxpayer or subcontractors prior to the manufacture, construction, or production of the applicable wind or solar facility. The test focuses on the type of work, not its cost or volume. This includes both off-site and on-site work, such as:
      • Manufacturing of components, mounting equipment, support structures (e.g., racks, rails, inverters, transformers), and other power conditioning equipment
  • The Five Percent Safe Harbor
    • Defines beginning of construction as the period when:
      • (i) A taxpayer pays or incurs (within the meaning of § 1.461-1(a)(1) and (2)) five percent or more of the total cost of the facility
  • The Continuity Requirement and Continuity Safe Harbor
    • Under the Physical Work Test and Five Percent Safe Harbor, taxpayers must demonstrate continuous construction or continuous efforts regardless of which method was used to establish the beginning of construction (see section 2.02(3) of Notice 2022-61).
    • The Continuity Safe Harbor provides that the continuity requirement will be considered met if the facility is placed in service within a certain time frame, outlined in the applicable tax credit.

The OBBBA’s Changes – Notice 2025-42

The following rules set forth by the OBBBA have an effective date of September 2, 2025 for applicable wind and solar facilities. Thus, projects that began before this date are not subject to this update.

Wind and solar projects that begin construction within 12 months of the OBBBA’s enactment (prior to July 5, 2026), can still qualify for the full credit with no placed-in-service deadline. For any wind and solar projects that fall outside of this one-year safe harbor, the OBBBA shortens the timeline for these projects to qualify for the credits, requiring these facilities to be placed in service by December 31, 2027.

The OBBBA modifies the beginning of construction regulations for the §45Y and §48E tax credits to prevent artificial manipulation or acceleration of eligibility. Key changes include:

  • Restricting the “Beginning of Construction” determination to the Physical Work Test only
    • The “Five Percent Safe Harbor” is not applicable to most facilities for this purpose and may only be used for low-output solar facilities (1.5 megawatts or less).
  • Maintaining the Continuity Requirement, which is satisfied if continuous physical work is performed.
    • There are specified excusable disruptions to a continuous program of construction, such as weather delays, permitting issues, or supply shortages (see section 4.02 of Notice 2025-42).

Exception: Continuity Safe Harbor

A taxpayer is deemed to satisfy the continuity requirement if the facility is placed in service by the end of the calendar year that is no more than four years after the year construction began.

If the facility is not placed in service within that four-year window, whether the continuity requirement is met will be determined based on facts and circumstances.

Example from Notice 2025-42:

  • If construction begins on August 20, 2025, and the facility is placed in service by December 31, 2029, the Continuity Safe Harbor is satisfied.
  • If the facility is placed in service after January 1, 2030, the IRS will evaluate whether the continuity requirement was met. July 5, 2026, marks the cut-off for beginning construction to claim the §45Y and §48E tax credits, so taxpayers seeking to earn these credits must do so before the termination date. This termination applies to applicable wind and solar facilities.

The OBBBA Update’s Effects on You

The new BOC rules under Notice 2025-42 apply to wind and solar projects that do not begin construction before September 2, 2025, under prior IRS guidance. Projects that begin construction before that date, including those relying on the 5% Safe Harbor, will remain governed by the prior IRS guidance on BOC.

For projects starting after September 2, 2025, taxpayers and developers must rely solely on the Physical Work Test as outlined in Notice 2025-42 to establish construction start dates (aside from low-output solar facilities) and must meet continuity requirements to retain eligibility for §45Y and §48E credits.

The July 5, 2026, cutoff is another critical milestone: projects that begin construction after this date and are placed in service after December 31, 2027, will no longer qualify for enhanced tax credits. Therefore, many taxpayers and developers will be pushing to get their project’s BOC date established prior to July 5, 2026, and must be aware of these new guidelines. Projects that start after July 5, 2026, will need to ensure that they are well-planned and on track to be placed in service prior to December 31, 2027.

Understanding these changes and planning accordingly is essential for maximizing incentives and avoiding disqualification, especially when it comes to the newly established deadlines. As the regulatory landscape evolves, staying informed and proactive will be key to successful clean energy project development. Alliant is here to assist you with all things prevailing wage to help you maximize your credit.

Need assistance? Feel free to contact us for solutions catered your projects.

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Inflation Reduction Act Good Faith Effort Exception Explained

Image showing technicians working inflation reduction act good faith effort exception

Table of Contents

Introduction

The contents of this blog have been transcribed from our YouTube video.

Under the Inflation Reduction Act, clean energy projects come with a lot of opportunity, but also a couple of compliance hurdles. One of the trickiest? The apprenticeship requirements tied to those attractive tax credits.

But what happens if you try to hire apprentices and can’t get a response? That’s where the Good Faith Effort Exception comes in. We’re walking you through everything you need to know to make sure you’re on solid ground.

What is the Good Faith Effort Exception?

To claim full tax credits under the Inflation Reduction Act, you need to meet both the prevailing wage and apprenticeship requirements. But, if you’ve genuinely tried to hire apprentices and run into roadblocks, the Good Faith Effort Exception might cover you. This exception allows your project to remain compliant if you meet specific criteria.

How to Qualify for the Good Faith Effort Exception

There are two ways this exception is granted.

1. The request was denied for reasons other than the taxpayer, contractor, or subcontractor’s refusal to comply with the established standards and requirements of the registered apprenticeship program, or

2. The registered apprenticeship program failed to respond within five business days of receiving a request.

So, the keys to remember are: you qualify for the exception if your apprentice request was denied, but not because you refused to follow the program’s rules or if the registered apprenticeship program just didn’t respond to your request within five business days.

It’s important to note, though, that there is a clock on this exception. It isn’t forever.

The 365 Day Rule

Once your valid written request is submitted and either denied or ignored, you’re covered for up to 365 days—366 in a leap year. After that, you’ll need to submit a new request to remain in compliance.

And here’s a common mistake to avoid: The exception only applies to the portion of the request that was denied or unanswered. If you need more apprentices later, you’ll need to repeat the process.

How Many Apprenticeship Requests are Required?

There is no limit on the number of requests you may submit to one or more registered apprenticeship programs for qualification under the Good Faith Effort. 

Subsequent requests to the same registered apprenticeship program are also not required in order to qualify for the Good Faith Effort Exception.

Conclusion

So, what’s the bottom line? The Good Faith Effort Exception isn’t just a loophole, it’s a safeguard for contractors who have exerted their commitments to complying with the apprenticeship requirements. By documenting your outreach, understanding the timelines, and staying proactive, you can protect your project and your tax credits.

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Top 5 Prevailing Wage Misconceptions Contractors Must Avoid

Image showing a construction crane and in a city skyline

Table of Contents

Introduction

The contents of this blog have been transcribed from our YouTube video.

Avoid costly compliance mistakes. Learn the top 5 prevailing wage misconceptions and how to stay on the right side of the law.

Prevailing wage requirements can admittedly be complicated and confusing to follow. Regulations can vary based on funding type, type of facility being constructed, and location of work being performed amongst a variety of other factors. Although the requirements differ depending on the applicable prevailing wage laws, there are common misconceptions that are found amongst contractors on all types of projects.

Misconception 1: “Prevailing wage doesn’t apply to me”

Once prevailing wage is effective on a project, the body responsible for upholding prevailing wage requirements can enumerate the requirement in their contracts. In certain cases, prevailing wage applies even if it’s not explicitly stated in the contract.

Under the Inflation Reduction Act, the taxpayer attempting to claim the increased credits is responsible for making sure all contractors on the project are paying prevailing wages to their employees and meeting the apprenticeship requirements. The taxpayer will be required to submit documentation showing that these requirements were met in order to receive the increased credit.

A question our team frequently receives is: “Do independent contractors or material suppliers need to be paid prevailing wage?” In California, an employee’s job title on a project does not affect their prevailing wage requirement applicability. If they complete physical labor on the project site, they must be paid prevailing wages for the classification of work performed. Under the Davis Bacon Act, material suppliers become subject to prevailing wage if employees engage in construction work at the site of the work. Their laborers and mechanics employed at the site of the work would be subject to Davis-Bacon labor standards in the same manner as those employed by any other contractor or subcontractor.

Misconception 2: “Only government projects mandate prevailing wage compliance”

There are prevailing wage projects that exist outside of a federal scope. State-by-state and local prevailing wage laws, even down to the city, can apply to a project. Alternately, the Inflation Reduction Act prevailing wage requirements applies to all clean energy projects, including private projects, where the increased credit is being claimed by the taxpayer on the project. Under the IRA, the funding source does not decide the applicability of prevailing wage requirements – the facility being constructed does.

Misconception 3: “Compliance means just paying the prevailing wage rate”

While paying the prevailing wage rate is a piece of the puzzle, it isn’t the only thing that decides if a contractor is compliant. Keeping adequate records or complete documentation of your efforts to pay the prevailing wage is another factor. This documentation can include check stubs, time cards, fringe benefit remittances, authorizations from employees allowing deductions from their pay, and a myriad of other forms of documentation.

The purpose is to have accurate records that paint the full picture of how an employee received their pay, so keeping this paper trail is a major part of prevailing wage requirements. This can also include records showing that any additional requirements were met, such as the employment of apprentices.

Misconception 4: “Prevailing wage rates are fixed and don’t change”

Though it varies widely depending on the applicable prevailing wage law, prevailing wage rates can change due to multiple factors. Some states or localities require annual increases issued on the same date each year, while other wage determinations include periodic increases throughout the year and footnotes indicating percentage additions to the rate of pay.

In another instance, if an employee is being paid as a laborer, but they assist an Electrician and handle equipment specific to the Electrician’s scope of work, this employee may be owed an Electrician’s rate of pay for their time spent completing Electrician work.

Prevailing wage rate changes can occur for several reasons, and it’s best practice to verify your rates and what may potentially cause your rates to change with the awarding body or project owner.

Misconception 5: “The contractor is responsible only for their direct employees”

In many cases, if a contractor hires a subcontractor, and additional subcontractors are hired to work on the project under them, the contractor would be liable for ensuring that all subcontractors working on the project under them are paying prevailing wages. Contractors can face penalties of different varieties, like underpayment interest or a per hour penalty for not meeting certain requirements. Including specific prevailing wage clauses in contracts is one of the most useful tools for upholding prevailing wage requirements at all levels of a project.

Conclusion

As prevailing wage regulations evolve, remaining aware of the changes and understanding the complexities helps avoid costly mistakes. As you work toward compliance, make sure you avoid these misconceptions. Need help navigating prevailing wage compliance? Contact our team for expert guidance