Tag: Prevailing Wage

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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

Table of Contents

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

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When Do You Pay Minimum Wage vs. Prevailing Wage? Key Differences Explained

Infographic explaining key differences between prevailing wage and minimum wage

Table of Contents

Introduction

The contents of the following blog come from our YouTube video.

With the applicability of prevailing wages expanding across industries and increasingly complicated regulations, it’s easy to get caught in the confusion of what wages apply when trying to figure out what you owe your workers. While minimum wages and prevailing wages are similar in concept, there are key differences between the two. Learn when to pay minimum wage or prevailing wage, how they differ, and how to stay compliant with labor laws on your projects.

What Is Minimum Wage and When Does It Apply?

A minimum wage is the lowest wage an employer can legally pay to their employees. Minimum wages can exist on different area levels, like federal, state, and local levels. The minimum wage is always applicable to employers in an area, and employers are required to pay the highest of the active minimum wages in their area. For example, if the federal minimum wage is $7.25, the state minimum wage is $14.50, and the city minimum is $15.25, the employer should pay $15.25, the highest of the three.

Understanding Prevailing Wage Requirements

While a minimum wage is applicable to areas, prevailing wages are applicable to specific trades. Prevailing wages are typically collected from the union wages in an area, typically gathered from local data. For example, a project subject to prevailing wage would require that an employer pays their workers, laborers, and mechanics the wages set for the trade they work in. Prevailing wages typically set a unique rate for each classification or trade. For example, laborers may be owed $24.00 and electricians may be owed $50.00.

When Do You Pay Minimum Wage vs. Prevailing Wage?

SCENARIO: A contractor has received federal funding for a project in 2015. They found that their project is subject to federal prevailing wages, the Davis-Bacon Act, and these wages have been set for the project.

In 2015, they owed $9 under the local minimum wage and $12 under the prevailing wage. In 2020, the local minimum wage became $13, but the prevailing wages were still $12.

Although the prevailing wage for the trade is $12, the employer must meet the minimum wage and pay $13.

Conclusion

It’s best practice to evaluate the highest rate you may be obligated to pay to avoid potential penalties or legal implications for underpayments. Be sure to review the minimum wages for your area and prevailing wages for your project to make sure you’re paying your employees in accordance with the legal requirements for the project. Have any questions? Let’s get in touch.

Helpful Links

Federal Minimum Wage: https://www.dol.gov/general/topic/wages/minimumwage

Davis-Bacon Act Prevailing Wage Determinations: https://sam.gov/wage-determinations

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What is a Prevailing Wage Determination?

Table of Contents

Introduction

When prevailing wage regulations become applicable on your project at a federal, state, or local level, one crucial aspect that contractors and subcontractors need to understand is the concept of prevailing wage determinations. This guide will walk you through what prevailing wage determinations are, why they are important, and how they impact your projects.

What is a Prevailing Wage Determination?

A prevailing wage determination is a list of wage rates and fringe benefits for each classification of laborers and mechanics. These determinations are issued by the governing body enacting your applicable prevailing wage oversight type. For example, the U.S. Department of Labor (DOL) publishes the determinations under the Davis-Bacon Act. The purpose of prevailing wage determinations is to ensure that workers on federally funded or assisted construction projects are paid wages that are comparable to those paid for similar work in the local area where the project is taking place.

How Do I Use a Prevailing Wage Determination?

Employers and contractors utilize prevailing wage determinations to inform them on how much their workers are owed in accordance with the prevailing wage regulation on their project. Most prevailing wage determination lists include the following: 

  • Classification/Job Title
    • The list of classifications on a prevailing wage determination are what you should be titling your employees on payroll. To know which classification best suits your employees, you must match the scope of work that your employees are performing with the classification that best suits that title. The scope of work consists of the activities being performed, tools being used, and materials being handled. Misclassifying your employees can pose a great risk to your compliance.
  • Base Hourly Rate
    • This is the base rate expected to be paid to your employees, which can be perceived as a minimum wage specific to this classification.
  • Fringe Benefits
  • Overtime Owed
  • Footnotes
    • Footnotes can include crucial information regarding workers’ pay, like potential increases to their wage amounts, differences in how overtime is applicable by the hour, and payments required for travel and subsistence amongst a variety of other potential notes. Reviewing all parts of a prevailing wage determination prevents potentially missing amounts owed to your workers and getting penalized for underpayments.

To see how this is used in a practical sense, check out our video tutorial here.

How Are Prevailing Wage Rates Determined?

Under the Davis-Bacon Act, the Department of Labor conducts surveys to collect wage and fringe benefit data from construction projects in various regions. Based on this data, the DOL establishes prevailing wage rates for different classifications of laborers and mechanics. A similar process can be found across other prevailing wage oversight types, whether that be at the state or local level. These rates are updated periodically to reflect changes in local wage standards.

How Do I Find My Prevailing Wage Determination?

To know which determination to use on your project, you must verify how wage determinations are pulled depending on your type. Take a look at the following types as an example:

  • FEDERAL EXAMPLE. Davis-Bacon Act – Wage Determinations are dependent on:
    • Construction Type (Heavy, Highway, Building, Residential)
    • Contract Award Date
    • Locality (e.g. the County the project is based in)
  • REGULATION EXAMPLE. Inflation Reduction Act – Wage Determinations are dependent on:
    • Negotiated Contract Date
      • In the absence of a contract or contract execution date, the date used instead is the day construction starts
    • Locality (e.g. the County the project is based in)
  • STATE EXAMPLE. California – Wage Determinations are dependent on:
    • Construction Type (Heavy, Highway, Building, Residential)
    • Bid Advertisement Date
    • Locality (e.g. the County the project is based in)

If you are unsure of how to locate the prevailing wage determination for your project, or need specific questions answered, we can put you in touch with an expert who can address all your prevailing wage needs. Reach out now to get the clarification you need. 

Compliance with Prevailing Wage Determinations

Contractors working on prevailing wage projects must adhere to the wage rates specified in the prevailing wage determinations. This includes paying workers at least the minimum wage rates and providing the required fringe benefits. It’s important that these wages are not only paid to the employees but are demonstrating compliance with the prevailing wage requirements.

Conclusion

Understanding prevailing wage determinations is essential for contractors and subcontractors at all levels on prevailing wage projects. By complying with these determinations, contractors can ensure fair treatment of workers and avoid potential penalties for non-compliance. As a contractor, staying informed about prevailing wage rates and requirements will help you confidently bid on and complete federal projects while upholding high labor standards. 

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The Role of Prevailing Wage Compliance in Disaster Recovery Work

Two environmental engineers wearing safety helmets and reflective jackets examine pollution on a shoreline near an industrial facility. One takes notes on a laptop while the other points at waste materials.

Table of Contents

Introduction

When natural disasters strike, construction becomes a crucial part of the recovery process. The work done by construction companies is vital for clearing debris, repairing infrastructure, rebuilding homes, and bringing back the essence of community. With the recent tragedy of the LA County wildfires, the rush to contain the fire and ensure the safety of the affected communities has been paramount. As contractors are brought in to aid in repairing affected areas, it’s beneficial to remember the applicable prevailing wage laws, especially when construction is funded by federal, state, or local government.

The Department of Labor (DOL) has previously urged recovery employers to avoid wage violations in light of the severe weather and the calamities of 2024.  The department has offered a Natural Disaster Compliance Assistance Toolkit, providing workers and employers with resources for disaster recovery work. Among these resources is the requirement to adhere to prevailing wage laws as a part of employer responsibilities.

California State Prevailing Wage Laws and the Davis-Bacon Act Federal Prevailing Wage Laws are the most prevalent types of regulation applicable to California wildfire recovery. California has received federal assistance to boost the containment of the wildfires, and further government assistance with recovery at a local level may be anticipated. It’s important to remain informed about these laws and how government funding may come into effect with construction efforts to rebuild communities.  

When is Prevailing Wage Applicable?

In California, prevailing wage takes effect on Public Works projects, which includes the Construction, alteration, demolition, installation, or repair work done under contract and paid in whole or in part out of public funds (Labor Code 1720).

Under the Davis-Bacon Act, the federal prevailing wage laws apply to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works.

What are the Key Factors of Prevailing Wage Compliance?

Requirements differ between the California and Davis-Bacon Act prevailing wage laws, but there are a few general best practices to keep in mind as you walk through your compliance journey. Some of these include:

  • Paying Prevailing Wages
    • Wage Determinations are lists of classifications/trades/job titles that include their rates and benefits owed. These prevailing wages may include footnotes that change the rate a classification is owed, like overtime, travel and subsistence, etc.
  • Properly Classifying Employees
    • With the nature of construction work, employees may be performing a variety of tasks. Each classification has a unique scope of work, including set of equipment being handled and materials being used. If an employee performs the scope of work for more than one classification, they would be owed the rates for all types of work performed. It’s best practice to keep accurate records of work being performed and paying the correct classification to avoid potential underpayments.
  • Maintain Accurate, Detailed Recordkeeping
    • All payment records that assist in painting the full picture of employees’ pay are key to proving the prevailing wages are being paid. Some of these documents may include, but are not limited to, time sheets, certified payroll reports, pay stubs/itemized wage statements, payroll deduction authorization forms, benefit summaries, etc.

Prevailing wage doesn’t stop there – there’s a wide variety of expectations for documentation maintenance, required forms/certification, payment processes, and more. For additional insight on California and Davis-Bacon Act prevailing wage, you can visit our YouTube channel for detailed overviews and step-by-step tutorials on document completion and prevailing wage compliance.

With prevailing wage compliance, contractors not only adhere to legal requirements but also support fair labor practices and contribute to the overall wellbeing of the workforce involved in disaster recovery efforts. In times of crisis, communities come together to rebuild and heal. As contractors play a pivotal role in these efforts, it’s essential to approach the work with sensitivity and empathy. The impact of the wildfires on people’s lives is profound, and ensuring fair labor practices can contribute to the broader recovery process.

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Penalty Protection with Prevailing Wage Training

Table of Contents

Introduction

Falling victim to penalties or a loss in tax credits are critical symptoms of a lack of prevailing wage compliance. In the construction industry, understanding the nuances of prevailing wage laws is crucial. But why should project owners and contractors invest in prevailing wage training courses? Here’s a breakdown of the key benefits:

1. Compliance with Regulations

Navigating the complex web of prevailing wage regulations can be daunting. The boost in construction regulation, ranging anywhere from public projects to securing tax credits for clean energy projects, are often met with a prevailing wage requirement. Training courses provide comprehensive knowledge of prevailing wage, helping contractors avoid costly compliance violations and legal penalties. Prevailing wage laws can be heavily coated in jargon, and prevailing wage training eases the potential issue of personal knowledge clashing with regulation.

2. Avoid Costly Penalties

Mistakes in wage payments can lead to audits, penalties, and damaged reputations. Training courses teach best practices for record-keeping and reporting, minimizing risks and ensuring smooth project operations. The federal prevailing wage regulation (Davis-Bacon Act), for example, cites violations of misclassification, failure to pay full prevailing wage, including fringe benefits, for all hours worked (including overtime hours), incomplete or inaccurate recordkeeping, and failure to submit certified payrolls weekly. There are other penalized violations on top of this, and being aware of the requirements on the prevailing wage type for your project can assist in avoiding scrutiny and penalties on your project.

3. Enhanced Job Performance

Knowledge is power. Contractors and project owners who understand prevailing wage requirements can verify that their projects are protected from penalties. These courses cover topics like proper documentation, wage determinations, and fringe benefit calculations, ensuring that everyone is on the same page with the regulations set forth by the governing body. With trainings being consistently offered, construction teams can remain up-to-date with resources that are readily available when needed, especially in a climate where changes in prevailing wage regulation occur on a frequent and unpredictable basis.

4. Customized Education

Courses can be tailored to meet the needs of your knowledge level. From monthly webinars to personalized trainings, Alliant is home to the experts of the prevailing wage industry. Our team is equipped to build lessons and answer questions for you and others who may be working on your prevailing wage projects, relieving you of the stress of gathering information. Whether you own a project, or would like to contract into one, Alliant has the training material to fit you. We can assign you to a trainer to assist you with your needs, you can review our upcoming webinars, or access our free educational resources.

5. Competitive Advantage

Contractors who are well-versed in prevailing wage laws can bid more confidently on public projects. This training gives them a competitive edge, as they can avoid underestimating costs and ensure accurate, compliant bids. Plus, they can attract clients who value transparency and expertise.

Conclusion

Investing in prevailing wage training courses is not just about compliance; it’s about building a stronger, more knowledgeable workforce that can confidently tackle public projects. These courses empower contractors and workers alike, ensuring everyone benefits from fair wage practices. So, take the first step towards success and enroll in a prevailing wage training course today!

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Inflation Reduction Act Apprenticeship Requirements

Supervisor and group of factory workers wearing hard hats meeting brief together before starting the day's work.

The contents of this blog post have been partially transcribed from our YouTube video, “Inflation Reduction Act (IRA) Apprenticeship Requirements”. We also cover the recordkeeping and prevailing wage requirements.

The Inflation Reduction Act opens tax incentives available to all taxpayers, and the requirement to comply with regulation to keep these credits becomes a rising priority. Amongst these requirements are the apprenticeship requirements. There are three main apprenticeship requirements under IRA: the Labor Hour Requirements, Ratio Requirements, and Participation Requirements. All requirements must be met to qualify for certain tax benefits and to avoid penalties.

Table of Contents

Labor Hour Requirements

The first requirement is the Labor Hour Requirement. This requirement sets a percentage of registered apprentice hours performed in reference to the total labor hours across the project. These percentages vary depending on the beginning of construction. 

  • If construction on your project began before January 1st, 2023, 10% of your overall project’s labor hours should be performed by registered apprentices. 
  • If the project began after December 31st, 2022, and before January 1st, 2024, 12.5% of hours should be registered apprentice hours.
  • Any construction occurring after December 31st, 2023 will have a 15% percentage requirement.

Ratio Requirement

When apprentices are on a project, they are typically supervised by journeymen. However, the provisions for the ratio at which the number of apprentices that a journeyman may supervise can vary. Under IRA, taxpayers must ensure that they are meeting the applicable supervision requirements under the state or federal provisions. The ratio will be determined either by the DOL or the applicable State apprenticeship agency. You may consult the applicable body to find your journeyman to apprentice ratio to avoid violations.

Base Participation Requirement

The base participation requirement for apprentices under IRA is as follows:

Each taxpayer, contractor, or subcontractor that hires 4 or more employees to work on a qualified facility must employ at least 1 registered apprentice. This requirement is maintained across the life of the project and is applicable across all contractors. 

Let’s examine a few scenarios to see how this is applied.

  • In scenario one, a contractor begins work on site and is going to have 6 employees. The participation requirement states that, because a minimum of 4 employees are performing work, at least 1 registered apprentice should be on payroll.
  • In scenario two, a contractor is consistently employing a different employee each week. Once the employee count of workers on site meets 4, a registered apprentice must be employed.

Good Faith Effort Exception

A contractor may possibly be exempt from apprenticeship requirements if they demonstrate the “Good Faith Effort Exception”. Under this exception, a taxpayer would be considered compliant under the apprenticeship requirements if they’ve demonstrated attempts to request an apprentice from a registered apprenticeship program and one of the following occurs: 1) The request is denied through no fault of the taxpayer, or 2) No response is provided within 5 business days after the request was received by the apprenticeship program. 

As noted by the IRS, “The good faith effort exception only applies to the specific portion of the request for apprentices that was not responded to or was denied. If a request was not responded to or was denied, the taxpayer must submit an additional request(s) to a registered apprenticeship program after 120 days to continue to be eligible for the good faith effort exception.” 

As provided by the IRA requirements, records must be kept, such as those indicating these attempts and proof of instances of exemption to thoroughly document efforts. 

How to Employ Apprentices

The IRS Guidance references an apprenticeship program tool, available at apprenticeship.gov. The Office of Apprenticeship’s “partner finder” and “apprenticeship job finder” tools provide access to different apprenticeship programs depending on your location and occupation. You may use either of these tools to find an apprenticeship program for a classification being employed on your project, and you may reach out to halls listed and attempt to employ a registered apprentice. 

You may also reach out to any state or local apprenticeship programs or offices in the project region that would assist in dispatching apprentices to meet this requirement.

Penalties

Per 87 FR 73580 Section 2, taxpayers who are unable to meet the ratio or participation requirements, or the “Good Faith Effort Exception”, may have to pay a penalty of $50 multiplied by the number of hours for which the requirement was not satisfied to the Secretary of Labor. If this is determined by the Secretary of Labor to be an intentional disregard for the provisions, the fine increases from $50 to $500 per hour. Taxpayers may also be forced to pay back the majority of credit received.

With this in mind, it’s important to meet the Apprenticeship Requirements under IRA and avoid costly penalties. If you have any questions or need further assistance, feel free to contact us. 

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What is Prevailing Wage?

The contents of this blog post have been transcribed from our YouTube video, “What is Prevailing Wage?” 

Project funding and changes in policy within the construction industry have increased the applicability of prevailing wage payments on projects. Enforcement is increasing, and the need to be in-the-know is higher than ever. Here is our summary of prevailing wage and what you should know to remain informed with the evolving project requirements. 

Table of Contents

Prevailing Wage Defined

The U.S Department of Labor, also known as the DOL, defines prevailing wage as “the average wage paid to similarly employed workers in a specific occupation in the area of intended employment.” These average wages are then set to become a standard for payment. In short, prevailing wages can be known as the minimum wage that must be paid to employees performing work on Public Work construction projects. Prevailing wage varies depending on the actual work being performed by employees and the location of the Public Work. 

As mentioned, prevailing wages are typically paid on public works projects across the nation. The definition of “Public Works” may vary from state to state. For example, per California Labor Code 1720, “Public Works” is defined as “the Construction, alteration, demolition, installation, or repair work done under contract and paid in whole or in part out of public funds. It can include preconstruction and post-construction activities related to a public works project.” 

Prevailing Wage Applicability

Although public works projects are common in prominence with the payment of prevailing wage, prevailing wages may still be applicable to other construction projects that are not considered “public works.” 

Taxpayers performing construction and attempting to claim tax credits and incentives under the Inflation Reduction Act can be required to pay Davis Bacon prevailing wages depending on the tax credit or incentive. Prevailing Wage applicability can also vary depending where your project is. In California, projects subject to Prevailing Wage are those that complete work under the Public Works definition, and are receiving public funding over $1000. 

Exemptions to prevailing wage payment in California include projects less than $1000 in public funding and specific worker types, such as security guards and volunteers. The liability to pay prevailing wage in California is also project-wide and isn’t the general contractor’s sole responsibility. All contractors, sub and tier, are required to pay the prevailing wage rates if their applicability is triggered. 

What’s at Stake

It’s best practice to remain informed on the prevailing wage information on the state and federal level to avoid underpayment penalties. In California, for example, Labor Code section 1775 states that penalties are assessed at no less than forty dollars ($40) for each employee and day they worked and were paid less than the prevailing wage rate. The penalty escalates to $120 for each calendar day if the violation is found to be an intentional disregard for prevailing wage. 

Federal consequences can include debarment, payment for insufficient amounts on unpaid wages, liquidated damages for overtime underpayments, and contract termination amongst other penalties. 

We offer a general state-by-state overview of compliance at the Federal and/or State levels. For more information or resources, feel free to watch our Frequently Asked Questions series and contact us if you need further assistance.

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California AB 2143 Overview

The contents of this blog post have been transcribed from our YouTube video, “California’s New Solar Regulation and Requirements: AB2143”  

Renewable energy is taking the construction space by storm and keeping up with regulations can be a tough feat, but we’re here to help. We’ll be discussing changes made to California’s net energy metering program that came into effect January 1st, 2024 in this overview of Assembly Bill 2143, also known as AB 2143. 

Table of Contents

Net Energy Metering Explained

Net energy metering is a tool that allows customers with renewable energy  systems, namely solar panels, to gain credit for solar projects exceeding 15 kW of energy generated that is fed back into the grid. So, extra energy gathered from a renewable energy source can be sold for credit. 

Applicability and Requirements

AB2143 is applicable to contractors entering into a contract to perform work on a renewable electrical generation facility or associated battery storage.  

The requirements include:  

• Paying Prevailing Wages  

• Maintaining and Verifying Payroll Records 

• Submitting digital copies of payroll records biannually  

Paying Prevailing Wages

Prevailing wages are the minimum rate required to be paid out to workers in a specific occupation, also known as a classification. California prevailing wage rates are issued by the Department of Industrial Relations, also known as the DIR. Not only are there required base rates assigned to each occupation type, but there are also fringe amounts and provisions that can differ per classification. For an in-depth review on prevailing wage, you can visit this video on our YouTube channel.

Maintaining and Verifying Payroll Records

The second requirement is the requirement to Maintain and Verify Payroll records. Payroll records must be accurate and display the following: 

• Employee name 

• Address 

• Social security number 

• Work classification 

• Straight time and overtime hours worked each day and week

• Actual wages paid 

They must also be signed under penalty of perjury, which is a legal statement by the signer verifying that all information on the payroll record is true.  

These payroll records must also be available for inspection or furnished upon  request to the awarding body and Division of Labor Standards Enforcement, also known as the DLSE. 

Biannual Payroll Submissions

Finally, each contract must submit digital copies of certified payroll records biannually. The dates for submission are July 1st and December 31st of each year.  The commission team that monitors Net Energy Metering projects will be retaining these records as public record for five years. 

So, to summarize the key points, prevailing wages must be paid at minimum to employees on renewable energy projects, payroll records of these wages must be kept and available upon inspection or request, and records must be submitted biannually. 

Penalties

While the requirements can be vast, violation of the requirements can pose major issues. AB 2143 is enforced through the following means: 

A civil wage and penalty assessment can be issued. So, if a contractor is found to be in violation, interest will accrue on all due and unpaid wages and the violator will be publicly listed by The Labor Commissioner. Construction workers cannot be underpaid and administrative complaints or civil action can be pursued for violation of the bill. 

Additionally, willful violation can result in revoked eligibility for the energy facility to receive service pursuant to AB 2143 Section 769.2(d).  

Exemptions

Please note, this bill is not applicable to the following (as derived from AB 2143 Section 769.2(f)):  

“  

• A residential renewable electrical generation facility that is eligible to receive service pursuant to the standard contract or tariff developed pursuant to Section 2827.1 and has a maximum generating capacity of 15 kilowatts or less of electricity. 

• A residential renewable electrical generation facility that is eligible to receive service pursuant to the standard contract or tariff developed pursuant to Section 2827.1 and that is installed on a single-family home. 

• A project that is a public work, as defined in Section 1720 of the Labor Code, and that is subject to Article 2 (commencing with Section 1770) of Chapter 1 of Part 7 of Division 2 of the Labor Code. 

• A renewable electrical generation facility that serves only a modular home, a modular home community, or multiunit housing that has two or fewer stories. 

“  

Conclusion

With everything discussed in mind, it’s important to be aware of and comply with the requirements of AB2143. Our team works closely with contractors through dozens of project types to assist in remaining compliant. If you would like in-depth assistance, please feel free to get in touch.