Published date: 12/13/2023

If you’re reading this, you’re likely looking for answers to the same questions that thousands of other companies and agencies are also searching for… all revolving around the Inflation Reduction Act’s (IRA) tax credits.

Just to be clear and upfront: this post is not intended to answer all of them. Hopefully, your organization has already gained some insight as to whether its project(s) might be eligible for the IRA credits (if it hasn’t, we recommend seeking out the advice of a qualified tax professional).

Instead, this post aims to shed some much-needed light on the prevailing wage and apprenticeship (PW&A) aspect of the tax credit qualifications. Or, more specifically, the strategies and tools that organizations have at their disposal to help manage and comply with the PW&A requirements. Because for many eligible entities (including energy companies, developers, agencies, or any other organizations with qualifying projects), this might just be their very first experience with this type of compliance. And with a tax credit of up to 30% potentially on the line, venturing blind out into new territory (or avoiding the opportunity altogether) would be a shame.

A Quick Explanation of “Prevailing Wage” and “Apprenticeships”

First, let’s get the basics out of the way to provide some context for the tools discussed further down. What is prevailing wage? Prevailing wage is a main component of the Davis-Bacon Act (DBA) and is a minimum wage paid to workers and laborers on applicable public works projects. And while DBA applies to federally funded projects, some states may even have their own prevailing wage guidelines that must also be followed when their funds are used for a project. Next: what exactly is an apprentice? An apprentice is a worker that is still learning their trade and does not yet make the full prevailing wage for their work, but rather a percentage of it. There are, of course, rules that govern who can be considered an apprentice, what they can be paid, and how many can/should be employed (but more on that later).

Where things can get tricky is tracking both of these requirements project-wide (a.k.a. ensuring every single contractor and subcontractor is following these regulations). The good news? There are electronic prevailing wage and apprenticeship solutions that can help make the oversight of this compliance a whole lot easier. Let’s dig into the biggest advantages organizations reap from utilizing these tools.

Electronic Solutions Can Facilitate Seamless Submission of Certified Payroll Reports

Certified payroll reports (CPRs) are the recommended documents contractors submit to prove they are paying their workers the correct prevailing wages. Likewise, they are the most effective vehicles by which entities can prove that their projects are complying with the prevailing wage aspect of PW&A.

But herein lies the first big obstacle that project owners will run into: collecting the hundreds or thousands of weekly (yes, weekly) CPR records submitted from every single contractor for the life of the project.

Seems daunting? Well, it definitely can be… unless you utilize a certified payroll software that 1) standardizes the submission process, and 2) provides administrators with high-level oversight so they can easily keep tabs on who has (or has not) submitted. When you consider that the alternative to this often involves maintaining a spreadsheet and continuously sorting through multiple different mediums (snail mail, fax, hard copies dropped off at the trailer, etc.) to collect and file the reports, it quickly becomes apparent how advantageous software can be to facilitate this.  

When it comes to choosing a solution, the best value here is sticking to a web-based platform. No one will have to deal with downloading software or manually sending a document somewhere. The software will be easily accessible for both project owners and contractors (including every tier of subcontractors), and documents can be viewed in the system the moment they are submitted. It’s as simple as opening a web browser and logging in.

An Electronic System Can Make Reviewing Certified Payroll Reports a Breeze

It’s not enough to simply collect the CPRs from contractors; compliance with PW&A also includes validating whether the information submitted on them is accurate and compliant. Those who have had the unfortunate experience of performing this manually have often cited it as one of the most tedious, time-consuming tasks of prevailing wage compliance.

Software, on the other hand, will allow an organization to lean on technology to perform the logical checks and detect errors on CPRs automatically. This expedites the process and reduces the burden placed on administrative staff. When a violation is identified, the system will require the contractor to correct it before submitting. And when further communication between the administrator and a contractor is necessary to rectify an issue, this can be conducted directly within that platform. This collaborative approach facilitates swift edits and resubmissions.

You Can More Effectively Track Apprenticeship Requirements and Hold Contractors Accountable

The second part of PW&A is the apprenticeship requirements. Like prevailing wage, these need to be met by every contractor and subcontractor working on an eligible project.

A comprehensive labor compliance solution will help track apprentice utilization. Doing so without one can prove just as problematic and labor-intensive as tackling certified payroll by hand… Because it’s not just apprentice participation that needs to be documented; organizations also need to make sure they are meeting:

• Labor hour thresholds (a percentage of all total labor hours worked on a project must be performed by apprentices)
• Daily apprentice-to-journeyperson ratios (a.k.a. the minimum acceptable number of journeypersons that must work on a project each day for every one working apprentice)

These are both metrics that electronic solutions can calculate automatically. It’s as simple as running a standard report that compiles data from the documents submitted through the system. A project owner can then leverage this to keep a closer eye on things and have an easier time holding contractors accountable.

Proving Compliance for IRA Energy Tax Credits

Ultimately, electronic web-based solutions combined with guidance from knowledgeable tax professionals are the best ways to help demonstrate compliance with these guidelines and claim the energy tax credits. They are also a great way for an organization to help protect itself from potential mistakes that could result in violations and penalties. If you claim the tax credits and fail to comply with either of the prevailing wage or apprenticeship requirements, each have their own set of consequences that not only have the potential to nullify the benefit of the credits, but also impose steep penalties.

Here’s a quick recap and some points to consider when looking for a solution:

• Look for one that electronically collects and checks certified payroll reports.
• It should also be able to track and report on apprenticeship requirements.
• It should store and archive the compliance documentation so your organization can more easily prove compliance.

If you would like to get a more in-depth overview of the PW&A requirements and how to meet them, download our IRA Prevailing Wage and Apprenticeship Playbook. If you would like to learn more about solutions discussed above that can help with the PW&A requirements, check out https://lcptracker.com/solutions/.

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LCPTRACKER PROVIDES NO LEGAL OR ACCOUNTING ADVICE. OUR TOOL IS SOLELY TO HELP YOUR ADVISORS REVIEW CONSTRUCTION PROJECT ACTIVITY AND LCPTRACKER TAKES NO RESPONSIBILITY FOR ANY NEGATIVE TAX OUTCOMES ANY CLIENT OR THEIR CUSTOMERS MAY ENCOUNTER. CLIENTS AND/OR PERSONS OR ENTITIES THAT THEY PERFORM SERVICES FOR, MUST PERFORM THEIR OWN DILIGENCE PURSUANT TO THE ADVICE OF THEIR TAX AND LEGAL COUNSEL IN FILING TAXES.