To increase the base amount of certain clean energy credits within the Inflation Reduction Act, a variety of “bonus” credits are available. One of the most-sought “bonus” credits is colloquially referred to as the “5 times” bonus credit, which can be available by meeting one or both of the prevailing wage and apprenticeship requirements, as applicable. The U.S. Department of Labor (DOL) has provided guidance surrounding what must be done to obtain the bonus credit, and what is still unknown and requiring further regulations. This FAQ summarizes these helpful insights:
General
The prevailing wage and apprenticeship requirements apply to projects for which construction, alteration, or repair occur. What exactly is included within the definition of these activities?
Construction, alteration, and repair is defined by 29 Code of Federal Regulations (CFR) Section 5.2(j), and includes the following activities:
- Altering, remodeling, and installation (where appropriate) on the site of the work of items fabricated off-site
- Painting and decorating
- Manufacturing or furnishing of materials, articles, supplies, or equipment on the site of the building or work
- Transportation between the site of the work and a facility that is dedicated to the construction of the building or work and deemed a part of the site of the work
- Transportation of portion(s) of the building or work between a site where a significant portion of such building or work is constructed and the physical place or places where the building or work will remain
Further examples as provided by the DOL include:
- Construction of buildings
- Installation and replacements of equipment
- Changes or additions to structural components of structures
- Changes or additions to systems
- Improvements for safety, efficiency, or functionality
- Installing fixed furniture
- One-time repair (rather than routine or recurring maintenance)
Further information can be found in Chapter 15 of the DOL handbook.
Prevailing Wage
Who must I consider when meeting the prevailing wage requirements?
29 CFR §5.2(m) defines a laborer or mechanic as “at least those workers whose duties are manual or physical in nature (including those who use tools or who are performing the work of a trade), as distinguished from mental or managerial.” These individuals could be either employees or 1099 independent contractors of the taxpayer1 or the taxpayer’s contractors and subcontractors. While these workers generally would include ironworkers, carpenters, electricians, equipment operators, truck drivers, and general laborers,2 they would not include administrative professionals. Administrative, executive, or clerical employees include “timekeepers, HR/payroll, inspectors, architects/engineers, and bona fide professionals for which a minimum salary level applies.”3 29 CFR §541 defines administrative, executive, and clerical employees for purposes of making this determination.
What costs are included in calculating the prevailing wage amount?
Prevailing wage includes the sum of base wages and certain bona fide fringe benefits. These fringe benefits include (but are not limited to) payments or contributions for health insurance, retirement accounts, pension plans, life insurance, etc. When the taxpayer researches the applicable prevailing wage for their project on sam.gov, it will display two figures: 1) the base wage and 2) bona fide fringe benefit amounts. However, as long as taxpayers pay the sum of both of these items, the “split” between 1) and 2) is irrelevant. Therefore, the taxpayer can contribute more to fringe benefits than the standard prevailing wage provided on the website, while at the same time paying less of a base wage. Again, the total is the critical amount for the requirement.
I need to find the prevailing wage I must meet for my project. Where can I find this?
Access published prevailing wages at sam.gov. A detailed guide of how to work through this site and obtain the correct prevailing wage is on the DOL website. Note that the prevailing wage is based on the location, construction type, timing, and classification of labor involved with the project. See here for an example of a wage determination report.
I need to know what construction type my project is to obtain my prevailing wage rate. What types of construction are there and what activities fall into each category?
The types of construction are as follows:4
- Building: Structures housing people, machinery, or supplies. Includes structures like parking garages, arenas, and commercial buildings. Multifamily apartment buildings that are higher than four stories—but not four stories or less—are included in this category. Outside of conventional constructions, activities in this category would include installation of related utilities, and incidental paving.5
- Residential: This category includes homes, including single family, townhomes, or multifamily apartment buildings that are four stories or lower.
- Highway: “Includes the construction, alteration, or repair of roads, streets, highways, runways, parking areas and most other paving work not incidental to building, residential, or heavy construction.”6
- Heavy: This is a “catch-all” for everything else. Therefore, this category includes projects like bridges and other infrastructure projects. More common for the clean energy arena, this category includes solar farm facilities and wind turbines.
To obtain my prevailing wage rate, I need to know what labor classifications are present at my project, and at which locality. How does this work when one laborer may perform work in multiple labor classifications, or perform work in more than one locality?
The type of work and specific locality are the driving forces for the prevailing wage rate determinations. Even if performed by one person on one project, the time worked within each labor classification and at each locality should usually be tracked separately. However, if you opt to pay the “highest” wage for the classifications present, it could be possible to avoid separate tracking (given you meet the lower wage classifications by default). Further, estimates of these items are not allowed. For example, Worker A is both an electrician and an ironworker. The solar project is being installed across county lines, which, according to sam.gov, is the delineation line for localities used for prevailing wage purposes. Worker A’s labor should be tracked as follows in these wage rate determinations:
| Electrician | Ironworker | |
|---|---|---|
| Locality 1 | 10 hr. $25 base, $10 fringe* |
30 hr. $30 base, $15 fringe |
| Locality 2 | 50 hr. $28 base, $15 fringe |
100 hr. $31 base, $18 fringe |
*Hours Worked
Base Wages/Fringe Benefits Paid
Note that “if a facility that primarily involves one type of construction also requires a substantial amount of work in another category of construction, then the applicable wage determination for each category of construction will apply to the work in each category. Work in another category of construction generally is considered to be substantial if the cost of all work in that category exceeds either 20% of total project costs or $2.5 million.”7
The prevailing wage rate used is at a specific point in time. When should I determine the prevailing wage for my project?
The prevailing wage rate is determined at different points in time depending on whether the taxpayer is self-performing work or work is completed by a contractor. If the work is completed by a contractor, the wage rate for the project is determined when the taxpayer enters into the contract with the prime contractor. However, if the taxpayer is self-performing the work, the prevailing wage determination should be made at the time the work begins. This wage determination does not need to be adjusted throughout the project, but instead is determined at either of these two points in time and must be maintained at this rate throughout the project (and for some credits and repairs for five or 10 years following construction).
What records must I keep to establish compliance with the prevailing wage requirement?
The books and records must be permanent and “sufficient” to establish the requirement is met. Examples of information that must be maintained include:
- Identification of each laborer and mechanic.
- For each laborer and mechanic identified:
- Wage determination(s)
- Labor classification(s)
- Construction type(s)
- Locality(ies)
- Hours worked per classification, construction type, and locality, as applicable
- Base wages paid and fringe benefits paid
- If the taxpayer had to request an additional classification, record of the request and approval.
Apprenticeship Requirements
What are the basic tests that must be met for the apprenticeship requirement?
Three basic tests must be met:
- Labor hour: A certain percentage of labor hours worked on the project must be performed by a registered apprentice. The percentages required are dependent upon the date that construction begins:
- Before 2023: 10%
- In 2023: 12.5%
- After 2023: 15%
- Ratio: A certain ratio of total workers should be apprentices versus journeymen (apprentice to journeyman ratio).
- Participation: If the taxpayer, contractor, or subcontractor employs four or more workers to construct, alter, or repair the project, then at least one apprentice must generally be present on the job to meet the apprenticeship requirement.
Are there any exceptions available for the apprenticeship requirement?
A good faith exception is available if the taxpayer requested an apprentice from a registered apprenticeship program and either 1) the request is denied (but not because of a refusal by the taxpayer or the taxpayer’s contractors or subcontractors to comply with the requirements for the apprenticeship program), or 2) the program fails to respond within five business days after the program receives the request. Records must be kept of this request and the denial or response failure in order for this good faith exception to hold. This good faith exception negates the need for the three basic tests to be met in order to meet the apprenticeship requirement. In essence, if the taxpayer meets the prevailing wage requirement and the good faith exception for the apprenticeship requirement, then the “5 times” bonus credit is available to the taxpayer.
What record-keeping is required?
Sufficient records are required to support that the labor hour, ratio, and participation tests are met. Examples of these records include a listing of each worker, their designation as an apprentice or a journeyman, qualification of an apprentice as being from a registered apprenticeship program, and the number of hours both apprentices and journeymen worked per day. As mentioned above, if the good faith exception is met, records to this effect also are required.
What does it mean to have an apprentice from a registered apprenticeship program?
A registered apprenticeship program is an industry-led program that meets federal or state criteria. Depending on the location, the programs are established by an Office of Apprenticeship or State Apprenticeship Agency. Taxpayers can either establish their own apprenticeship program or utilize an already established program.
How do I find an established apprenticeship program?
The government has made available certain online tools to help identify local qualified apprenticeship programs, and to determine what activities could qualify for these programs. There is a “Partner Finder Tool” that allows taxpayers to search for a registered apprenticeship program in their area. An “Occupation Finder” tool also is available to find which occupations are considered “apprenticeable.” These resources are available on the apprenticeship.gov website.
Conclusion
The Inflation Reduction Act contains various incentives and credits for clean energy initiatives. Understanding what credits may be available to you and what requirements you need to meet is a thorough process that involves great detail. Our professionals can help you identify which clean energy credits you may qualify for, evaluate the costs and benefits of pursuing the “5 times” bonus credit, and understand and comply with the related record-keeping requirements. To learn more, reach out to a professional at Forvis Mazars or complete our Contact Us form below.
- 1Note that certain credits within the Inflation Reduction Act are available to tax-exempt entities. Therefore, when “taxpayers” are referenced within this FAQ, this term largely refers to the entity claiming the credit and does not necessarily limit these explanations to taxable entities.
- 2Inflation Reduction Act Prevailing Wage and Apprenticeship Requirements
- 3Webinar on the Inflation Reduction Act's Labor Standards Provisions
- 4Webinar on the Inflation Reduction Act's Labor Standards Provisions
- 5Webinar on the Inflation Reduction Act's Labor Standards Provisions
- 6Wage and Hour Division Davis-Bacon Wage Determination Conformance Request Guide, September 2021
- 7Wage and Hour Division Prevailing Wage and the Inflation Reduction Act