As the world increasingly embraces green energy, renewable energy companies have been at the forefront of promoting sustainable practices. To encourage this transition, the government offers a variety of tax breaks and incentives, including the Inflation Reduction Act (IRA). There are many incentives within the IRA, but to qualify for most of them you have to follow prevailing wage and/or apprenticeship requirements. For companies that have never before encountered prevailing wage work, this can be daunting. This guide provides a brief overview of the Inflation Reduction Act prevailing wage requirements and what that means for your renewable energy company.
Inflation Reduction Act 101
The Inflation Reduction Act is a legislative initiative aimed at mitigating the adverse effects of inflation on the economy. Under the act, companies may receive certain increased tax benefits by meeting prevailing wage and apprenticeship requirements. By statute, the prevailing wage and apprenticeship requirements generally apply to qualifying facilities where construction begins 60 days or more after the U.S. Department of the Treasury and the Internal Revenue Service (IRS) published guidance on those requirements. On November 30, 2022, this guidance was published, marking the beginning of the 60-day period. This means that in order to receive increased incentives, you must meet the prevailing wage and apprenticeship requirements for facilities where construction begins on or after January 29, 2023. Prevailing wage and apprenticeship provisions apply to the following programs under the IRA:
- Alternative Fuel Refueling Property Credit
- Production Tax Credit
- Credit for Carbon Oxide Sequestration
- Credit for Production of Clean Hydrogen
- Clean Fuel Production Credit
- Investment Tax Credit
- Advanced Energy Project Credit
- Energy Efficient Commercial Buildings Deduction
In addition, the Inflation Reduction Act’s prevailing wage provisions apply to the:
- New Energy Efficient Home Credit
- Zero-Emission Nuclear Power Production Credit
To take advantage of these programs, your company must follow prevailing wage provisions, or prevailing wage and apprenticeship provisions.
Understanding Prevailing Wage Laws
Federal prevailing wage laws were put in place to ensure fair compensation for workers on federally funded projects. These laws fall under Davis-Bacon and Related Acts, and they mandate that workers on public works projects receive wages that are consistent with wages paid for similar jobs within the area. Some states have their own prevailing laws for state-funded projects. Companies that take on government projects must follow the requirements outlined in these laws in order to receive payment and stay compliant. This includes companies hoping to take advantage of the benefits offered under the Inflation Reduction Act. Let’s look at the basics of complying with federal prevailing wage laws.
Prevailing wage Basics
Prevailing wage law can get complicated but complying with it basically comes down to the following actions:
- Paying workers the correct prevailing wage and fringe benefits as determined by wage determinations published by the government.
- Following record keeping and reporting requirements for certified payroll.
- Following apprenticeship requirements when applicable.
Keeping sufficient records to demonstrate laborers and mechanics were paid prevailing wage rates is key to obtaining your ability to qualify for any incentives under IRA. If you contract work out to subcontractors, they must also comply with these provisions to maintain your eligibility for incentives.
What workers qualify for prevailing wages?
Laborers and mechanics: Workers that perform work in trades and occupations that are primarily manual labor and skilled trades such as electricians, ironworkers, carpenters, and general laborers. Under IRA, this includes non-employees that perform this work on your behalf, including independent contractors that receive 1099.
What workers do not qualify for prevailing wages?
Administrative, clerical, architects, inspectors, and executive work are examples of work that is not included under “laborers and mechanics” and do not fall under prevailing wage requirements.
What are prevailing wage rates?
Prevailing wages are determined by the Secretary of Labor and refer to the wage listed for a specific classification of laborer or mechanic on the wage determination for the type of work AND geographic area. Classifications are job types such as electrician, carpenter, general laborer, and similar roles. Prevailing wages include basic hourly wage rates PLUS fringe benefits. The following wage determination shows the hourly and fringe rates for two types of electrical job classifications in Alaska. The full amount owed to workers performing this specific type of work is the amount in the Rates column added to the amount in the Fringes column.
What are fringe benefits under IRA?
Fringe benefits are in addition to the hourly prevailing wage rate. Fringe benefits can either be paid in cash and simply added to the hourly wage rate or paid through some types of benefits. Anything that is required by law, like workers’ comp or social security, does not count toward fringe benefits. This means fringes can be paid in cash or options such as:
- Life insurance
- Health insurance
- Sick Leave
Cash is the most expensive way to pay fringe benefits because you pay more in payroll taxes, workers’ comp, and general liability. Fringe benefits paid through an eligible bona fide trust can save your company lots of money.
How do you find prevailing wage rates
The awarding agency will often provide you with the correct wage determinations for the project. However, there are other times where the wage determination is not provided, and you must find the correct prevailing wage for each work classification on your project. Either way, it is your responsibility to use the correct information, so you’ll always want to verify wage rates. The Department of Labor (DOL) publishes official wage determinations on SAM.Gov. This is the official government website for those that make, receive, and manage federal awards. If you go to the SAM.gov home page, you’ll need to select “Wage Determinations” to get started.You can also bookmark the following link to take you directly to the wage determination section. SAM.gov/content/wage-determinations Once there, the following steps will help you locate wage determinations for your project:
- When you first visit Sam.Gov, you will see a basic search engine that says, “Help me Find a Wage Determination.” There are two options that you can choose here:
- I know the WD number
- I do not know the number: The one for “Public Building or Works” is what you use for wage rates for laborers and mechanics
- Once you select “Public Building or Works” you need to enter filtering criteria for state, county, and construction type of your project.
- You may see one or more results related to your filtered search. Each result has a wage determination (WD) number, counties it applies to, date and details about the determination. Select the result that matches your project.
- The wage determination you select will have a cover sheet that lists details about the determination along with a list of job classifications. Find the job classification that relates to your project to locate the hourly wage and fringe rate. Remember, the total paid hourly must equal the sum of these totals added together.
What to do if you need help
You can visit the Department of Labor’s IRA information page for helpful information about the IRA and prevailing wages. You may also find that you need a job classification that doesn’t currently exist. In that case you can request additional classifications by emailing the DOL at IRAprevailingwage@dol.gov.
Certified Payroll Basics
Certified payroll reports tell the DOL that you’re following the law in how you handle payroll for your prevailing wage projects. These are weekly reports that outline important payroll details to prove that all applicable laws are being followed. One of the easiest ways to fulfill these reporting requirements is to use form WH-347. They must include a great number of details on each worker’s pay, role and time worked, including the following information:
- Complete legal name and an identifying number of each worker. This can be the last four of their SSN.
- Work classification they worked under, which may be more than one.
- All hours worked, including the day, date and straight time and overtime hours.
- Total hours worked for the week being reported on.
- Rate of hourly pay. If more than one work classification is worked, this must be shown per each one
- Gross amount earned
- Payroll deductions and total of the deductions
- Net wages paid for the week
Certified payroll reports are mandatory, time-consuming, and complicated. It is easy to make mistakes, especially if you’re new to them or using manual processes like hand-written timecards. We have a guide that shows you how to complete Form 347 in greater detail. You’ll also find links to many other helpful resources to get you started on the right foot. Wrap up The IRA offers many incentives that can make government contracts more lucrative, but you have to comply with prevailing wage requirements to take advantage of them. This guide is a great starting point, but if you’re serious about growing your business with government contracts, you may want to consider a software solution that helps automate some aspects of compliance. Standard payroll software is not set up to handle the unique aspects of certified payroll, but we created our system specifically to handle certified payroll. Learn more about our payroll solution and check out some success stories.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.