April 7, 2025
Navigating Prevailing Wage Compliance Under the IRA: What You Need to Know
The Inflation Reduction Act (IRA) has introduced new compliance challenges for clean energy projects, particularly around Prevailing Wage and Apprenticeship (PWA) requirements. Ensuring compliance is crucial to avoid hefty fines and maintain access to valuable tax credits.
Prevailing Wage and Apprenticeship Compliance: Introduction
As a part of the Inflation Reduction Act, Congress outlined a set of criteria around Prevailing Wage and Apprenticeship (PWA) compliance that comprise 80% of the clean energy tax credit basis.
Unfortunately, compliance is far from straightforward. Unlike traditional public works projects where the Department of Labor (DOL) enforces Prevailing Wage rules, the IRS serves as the audit, compliance, and regulatory authority for IRA Projects.
Differences between IRA and DBRA Prevailing Wage Requirements
To complicate matters, there are differences between IRA Prevailing Wage requirements and Davis Bacon and Related Acts (DBRA) Prevailing Wage requirements which create tremendous risks that can compound over the course of a project.
Taxpayers should realize that “Prevailing Wage and Apprenticeship” compliance come in a wide array of sizes and flavors across localities, funding structures, countries (e.g., Canada’s own ITC requirements mirror those of the U.S.), states, enforcement mechanisms, and tax incentives. Thus, much of the publicly available guidance relating to existing Federal DBRA projects is distinct and not entirely applicable to IRA projects.
Even well-intentioned misinterpretations, erroneous accruals, or deviations from state-specific processes can rapidly snowball into consequential issues.
DSPTCH’s IRA Field Guide contains a comprehensive comparison of the differences between IRA and DBRA Prevailing Wage Requirements to help you stay on course.
Implications: The IRS as the Regulatory Authority
With IRA compliance, taxpayers must maintain thorough records for the IRS, inclusive of all respective contractors, subcontractors, and workers affiliated with the project’s tax credit claim.
Thus, it is the taxpayer who explicitly holds the fine, penalty, backpay, and Intentional Disregard risk associated with their respective tax credit claim filings.
The taxpayer should independently mitigate these risks and oblige downstream compliance through commercial and transactional mechanisms (e.g., indemnification, vendor contract language, etc.).
In fact, even if a company (EPC/Sub) involved with an IRA project is reported to the DOL for failing to properly pay workers Prevailing Wages, the DOL would lack jurisdiction and authority to act.
In other words, the IRS will enforce all penalties onto the taxpayer, even for penalties accrued by EPCs or subcontractors.
Prevailing Wage Compliance: Wage Determinations
Prevailing Wage requirements aim to ensure workers receive fair compensation, but the calculations are anything but simple. Wage Determinations, state and local laws, and the specific scope of work all introduce complexities that make each project unique.
Wage Determinations are official listings of prevailing wage rates and fringe benefit rates for each labor category involved in a project. These rates vary based on:
Location: Different counties and states have different wage requirements.
Job Classification: Different roles on a project (like electricians or operators) have distinct wage rates.
To find the applicable Wage Determination for your project:
Visit SAM.gov: The website provides Wage Determinations by state, county, and construction type.
Search for the Proper Wage Dertermination: Use the search function to filter by relevant parameters for state, county, and construction type.
Review All Requirements: Pay attention to footnotes, which may include non-wage-specific requirements that can impact compliance.
Document Everything: Once you have the applicable Wage Determination, keep a copy on file and ensure your payroll calculations reflect the specified rates.
Failing to correctly identify or apply the appropriate Wage Determination can lead to costly errors, including backpay and penalties. To avoid future penalties, the best practice is to document clarifications or submit additional Job Classification requests to the DOL when uncertainties arise.
For more information on requesting additional classifications from the DOL, check out page 66 of DSPTCH’s IRA Field Guide (linked below).
Want to Ensure You’re Fully Compliant?
To make sure your project meets every Prevailing Wage requirement, download our comprehensive DSPTCH IRA Field Guide. It covers everything from Wage Determination to maintaining compliance documentation, helping you minimize risk and protect your tax credits.
Inside, you’ll find:
