Who Keeps Prevailing Wage Records on a Nonprofit Job

Your contractor hiring the crew does not move the prevailing wage recordkeeping obligation off your organization. Treasury’s final prevailing wage and apprenticeship regulations, issued June 18, 2024, put that obligation on the party claiming the credit, and it reaches workers that party never employed. Those regulations were written for a list of credits that doesn’t include Section 48 or Section 48E, so an investment credit project gets the same substance from a different regulation, named in the note at the end.

They also say, in plain words, that an owner can’t rely on a contractor’s certification of compliance, and can’t discharge the obligation through a contract clause. For a school district or housing authority claiming the credit as a direct payment, that changes what belongs in the construction agreement.

Which projects have to meet prevailing wage and apprenticeship rules

Two exceptions come first, because they decide whether the rest applies.

A project with maximum net output under 1 megawatt (AC) is exempt. Capacity is measured by nameplate rating. Aggregation follows the definition of facility or project in the relevant credit section, so a multi-building campus can be pulled above the line even when each array is small.

A project that began construction before January 29, 2023 is also exempt and still gets the increased amount.

Everything else has to comply to reach the 30% rate instead of 6%.

What prevailing wage and apprenticeship compliance requires

Laborers and mechanics employed by the owner, any contractor, and any subcontractor have to be paid at least the prevailing wage for their classification and locality, during construction and during any alteration or repair in the years after the project is placed in service. If no alteration or repair work happens in a year, the requirement is treated as satisfied for that year.

The rates come from Department of Labor wage determinations under the Davis-Bacon Act, published by DOL on its approved website, currently SAM.gov. The determination that applies is the one in effect for that type of construction in that area when the contract is executed, and it carries down to subcontracts under that contractor. With no contract, it’s the one in effect when construction starts.

Apprenticeship has three parts. A percentage of total labor hours has to be performed by qualified apprentices: 12.5% for construction beginning in 2023, and 15% for construction beginning after 2023. The daily allowable ratio is the registered program’s apprentice-to-journeyworker ratio, subject to any applicable DOL or state apprenticeship agency requirements, and it’s tested each day. And each taxpayer, contractor, or subcontractor employing four or more individuals on the work has to employ at least one qualified apprentice.

There’s a good faith effort exception on apprenticeship, and it’s conditional. The request has to be in writing, sent electronically or by registered mail, to a registered program whose geographic area covers the site and that trains the occupation you need. The first request goes out no later than 45 days before the apprentices are needed on site, and any later request to the same program no later than 14 days before. It states the dates, occupation, location, number of apprentices, expected labor hours and your contact information. If that request is denied for reasons other than a refusal by you or your contractors to meet the program’s standards, or the program doesn’t respond within five business days, the requirement is treated as met, but only for the period the request covers and never more than 365 days.

What a prevailing wage or apprenticeship failure costs

Failure	Correction	Penalty to the IRS
Prevailing wage	Pay the shortfall to each worker with interest at the Section 6621 underpayment rate computed by substituting six percentage points for three, which is the federal short-term rate plus six	$5,000 per underpaid worker
Prevailing wage, intentional disregard	Three times the shortfall plus interest	$10,000 per worker
Apprenticeship	Not applicable	$50 per labor hour of shortfall
Apprenticeship, intentional disregard	Not applicable	$500 per labor hour

Correction and penalty payments are due within 180 days of a final IRS determination. If they aren’t made, the increased credit isn’t allowed.

Two routes avoid the prevailing wage penalty entirely. It’s waived if you make the correction payment by the last day of the first month after the calendar quarter in which the failure happened, and either the worker was underpaid in no more than 10% of the pay periods that year or the shortfall is no more than 5% of what was required. Separately, the penalty doesn’t apply at all where the work is done under a qualifying project labor agreement and any correction payment is made on or before the date the increased credit is claimed.

The records an owner has to be able to produce

At a minimum the owner must keep payroll records for every laborer, mechanic, and apprentice employed by the owner, any contractor, and any subcontractor. The regulations also list what a complete file looks like: worker identification, project location and construction type, labor classifications with the applicable wage determination and copies of executed contracts, hourly rates including fringe contributions, hours by pay period, and total wages and deductions. The file also carries apprentice program registration and ratios, records of any correction and penalty payments, records of failures and what was done about them, and complaints received.

On apprenticeship: written requests to programs, program standards including each program’s ratio requirement, total labor hours identifying apprentice hours, the daily ratios, and documentation of any denial you’re relying on.

The rules give three ways to hold all this:

Under all three, unredacted records have to be available to the IRS on request. Method 3 is the lightest to administer and the riskiest, because after a job closes out a contractor has little reason to answer the phone. If you use it, the contract needs audit access rights that survive completion.

The regulations decline to set a retention period, pointing instead to the general rule that records are kept as long as they may be material. For an investment credit with a five year recapture period, plan on keeping the file well past the last recapture year.

What the records clause in an EPC contract has to produce

A clause saying the contractor “shall comply with all prevailing wage and apprenticeship requirements and maintain records of compliance” is the one the preamble to the final regulations specifically says doesn’t discharge the owner’s obligation.

What the clause has to produce, and what’s worth raising with your construction counsel before signing, is monthly and closeout delivery to the owner of certified payrolls, wage determinations used, classifications, fringe benefit records, apprentice requests and responses, and daily ratio records. Unredacted copies available on request for the full recapture period. Audit rights surviving completion.

What to do next

If your project is 1 MW or larger, fix the records clause before the contract is signed. After closeout, you’re negotiating for documents you already needed.

This article is general information, not tax advice, and it reflects IRS guidance as of June 24, 2024. Deadlines and eligibility depend on your organization's tax year and entity type. Please confirm your own facts with a qualified tax professional before relying on anything here.