April 7, 2025
How Quickly Can PWA Fines Pile Up? A Real-World Scenario
Did you know that PWA fines are independent of a project’s tax credit basis, meaning they’re uncapped? This makes proper compliance critical.
Let’s take a look at just how quickly fines can accrue.
Hypothetical PWA Liability Example
Let’s create a hypothetical project to illustrate how fines can accumulate. For starters, let’s assume we’re dealing with a $100,000,000 solar project receiving $50,000,000 in tax credits (detailed breakdown below):
To complete the project, let’s assume we will need 200 workers on staff for 50 weeks. The full breakdown of assumptions is available below:
Let’s presume that the taxpayer’s IRA compliance manager starts their position around the time the project kicks off (another real-world scenario). In the process, the taxpayer relies on their EPC and subcontractors (who have little-to-no prior PWA experience) to recommend Wage Determination/Job Classification rates. The taxpayer then accepts the recommendations (note, the EPC now has approval from taxpayer—which could shield the EPC from commercial liability). In the process, no party makes a formal request to the DOL for Wage Determination clarification, Apprentice Good Faith Exceptions, or enrollment verification in a DOL approved apprenticeship program.
The all-too-real scenario is that a manager at the EPC went to SAM.gov and chose the most applicable Prevailing Wage rate based on the available Job Classifications in the project’s locale. Once the taxpayer provides written approval for their Wage Determinations, the EPC operates as if the rates were gospel.
However, in the process of reviewing the project’s tax credit claim, the IRS determines that the project applied incorrect Wage Determinations/Job Classifications, rendering previous certified payroll processes/reports effectively moot.
In simple terms, this means that the taxpayer has effectively underpaid workers and now owes significant backpay fines.
Going further, the IRS also determines that the projects “Apprentices” were not part of a DOL registered apprenticeship program (thus, the Apprentice Hours were ineligible). To remain qualified for the PWA multiplier, the project must pay hourly penalties (on 15% of the project’s total PWA qualified hours) and true-up Apprentice Wages according to the guidance below.
For reference, there are many industries with informal apprenticeship programs that provide extensive on-the-job training. Although these are a fair approach to workforce development and certainly aligned to the spirit of the apprenticeship requirements, the IRA only recognizes hours performed by Registered Apprentices in DOL-approved apprenticeship programs.
Due to these errors, the IRS assesses Intentional Disregard penalties on our hypothetical project.
Penalty Calculations
For each worker underpaid the proper prevailing wage, there is a $10,000/worker fine.
Additionally, there is a back pay fine to compensate for the difference in the proper prevailing wage and what each worker was actually paid. There is also a 6% interest payment required. And, due to Intentional Disregard, there is an added 3x fine multiplier.
Lastly, for each hour below the 15% apprentice hour ratio, a $500/hr hour fine is assessed.
Combined with other costs, our hypothetical project has accrued $82,524,500 in cure provisions.
Prevent this Scenario from Becoming Reality
For a more detailed breakdown behind the math of accruing $82,524,500 in cure provisions, read pages 45 to 51 of our IRA Field Guide.
