How do you handle panels on load sides of large UPS units? Usually the UPS limits the available fault current and makes the arc flash hazard very low. However, should I consider the bypass mode when conducting an arc flash study as that would almost always produce a higher arc flash hazard and higher PPE requirements?

Depends on what you plan on doing. If your NORMAL operating condition is in bypass, then yes.

However most folks only put the UPS in bypass mode while servicing the UPS itself. Fault current at the bypass (disconnect) switch is obviously a concern during servicing functions and would see the full arc flash hazard related to whatever is feeding the UPS. Beyond that...

The same question arises when looking at generators or when looking at various configurations of double-ended substations, or any other scenario where you can make large scale changes to either sources or power or the distribution system configuration. Usually the most prudent approach is to understand the risks, if any, and then take appropriate action. If we're talking about rare conditions then it is probably not worth the effort to add a scenario. Otherwise you could potentially have billboard size labels listing all kinds of possible scenarios and conditions.

As a case in point, mining operations routinely have portable substations that get moved around frequently. Effectively their entire power distribution system is all temporary wiring and changes occur frequently, sometimes weekly. Some changes make minor changes. Some can change the incident energy by a factor of 10. So for them you have to more or less just look at worst case.

It isn't a good assumption that for large systems the IE is low, just because you are sourced from the modules.

A good size multi module system can have fairly substantial load current, and a fault current that is ~25-50 % above that can last (in arc flash terms) a long time, but at arcing currents too low, to trip the output main at ST values.
Additionally larger more complex systems will probably be operated in a mode that will automatically go to bypass if there is a problem with the inverters.

It is my experience that frequently the "online" case has the higher I.E.