Inflation Reduction Act (IRA) Guidance
Quicklinks to governmental resources for additional infomation:
Inflation Reduction Act Prevailing Wage and Apprenticeship Requirements
Prepared for WECA Members by Industry Partner Cook Brown LLP
Taxpayers seeking to qualify for tax credits under the Inflation Reduction Act (IRA) for certain clean energy and infrastructure construction, alteration and repair projects must ensure that they and their contractors and subcontractors pay Davis Bacon prevailing wage rates and employ a certain number of registered apprentices on those projects. On November 30, 2022, the U.S. Treasury Department published in the Federal Register its guidance on the IRA’s prevailing wage and apprenticeship requirements. The United States Department of Labor also issued two Frequently Asked Question (FAQ) documents, one on prevailing wage and one on apprenticeships and has posted a YouTube tutorial reviewing the labor standards requirements. The publication of the Treasury Department’s guidance started a 60 day clock for the prevailing wage and apprenticeship requirements to take effect on any new construction projects covered by the IRA, i.e. projects beginning construction on or after January 29, 2023. Below are some key takeaways pertaining to the IRA’s prevailing wage and apprenticeship requirements.
Applicable Tax Benefits
The IRA's prevailing wage and apprenticeship provisions apply to the following tax benefits:
▪ 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
The IRA's prevailing wage provisions apply to these tax benefits as well:
▪ New Energy Efficient Home Credit
▪ Zero-Emission Nuclear Power Production Credit.
Deadline for Compliance
Taxpayers must meet the prevailing wage and apprenticeship requirements for facilities where construction begins on or after January 29, 2023.
Prevailing Wage Provisions
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Paying all laborers and mechanics performing construction, alteration, or repair at a qualified facility at least the applicable prevailing wage rate established under the Davis Bacon Act; and
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Maintaining and preserving sufficient records to demonstrate laborers and mechanics were paid wages not less than the prevailing wage rates for the type of work performed.
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“Laborers and mechanics” include workers who perform primarily manual or physical work in trades or occupations such as electricians, equipment operators, and general laborers.
Where to Find Prevailing Wage Rates
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Davis Bacon prevailing wage determinations issued by the U.S. Department of Labor are published at sam.gov.
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From the sam.gov homepage, (1) select “Wage Determinations; (2) select “Public Building or Works”; (3) select the applicable State, County, and Construction Type; and (4) select the applicable wage determination.
Applicable Wage Determination
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When the taxpayer is contracting with a prime contractor to perform construction, alteration, or repair of a facility the taxpayer should use the most up to date Davis Bacon wage determination at the time it enters into the contract with the prime contractor.
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When the taxpayer is self-performing the construction, alteration, or repair of a facility, the taxpayer should use the most up to date Davis Bacon wage determination available at the time the work is commenced.
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Note that there may be circumstances in which compliance with state prevailing wage laws is also required, for example where a California project receives state funding and/or is administered by a state agency, in which case a contractor/ subcontractor would be required to identify the applicable state and federal prevailing wage and apprenticeship obligations and comply with the stricter of the two.
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For example, California Assembly Bill 2143 establishes that, after December 31, 2023, construction of any renewable electrical generation facility and any associated battery storage that receives service pursuant to the standard contract or tariff developed by a public utility pursuant to Public Utilities Code Section 2827.1 will be subject to the California Prevailing Wage Law. This requirement does not apply to (1) a residential facility that will have a maximum generating capacity of 15 kilowatts or less of electricity or that will be installed on a single-family home or (2) a renewable electrical generation facility that services only a modular home, a modular home community or multiunit housing having two or fewer stories.
Apprenticeship Employment Requirements
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Apprenticeship Labor Hour Requirement: At least an applicable percentage of total labor hours for construction, alteration, or repair work on a qualified project must be performed by qualified apprentices who are registered with a federally approved apprenticeship program or an apprenticeship program approved by a federally recognized State Apprenticeship Agency.
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For facilities that began construction before 2023, the applicable percentage is 10%.
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For facilities that begin construction in 2023, the applicable percentage is 12.5%
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For facilities that begin construction after 2023, the applicable percentage is 15%
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Ratio Requirements: The above labor hour requirement is subject to any applicable requirements for apprentice-to-journeyperson ratios of the Department of Labor or the applicable State Apprenticeship Agency. For example, on projects subject to the California Prevailing Wage Law, the minimum ratio requirement is one apprentice hour for every five straight time hours of journeyperson work.
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Apprentice Participation Requirement: Each taxpayer, contractor or subcontractor who employs 4 or more workers to perform construction, alteration, or repair work with respect to the construction of a qualified facility must employee 1 or more qualified apprentices.
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Recordkeeping Requirements: Taxpayers are required to keep records showing that the apprentice to journeyperson ratio of the apprenticeship program on each day that an apprentice was working was met; that the apprentice labor hours for construction, alteration, or repair were met; and that the apprentice participation requirements were met.
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Good Faith Effort Exception: A taxpayer is deemed to have satisfied the apprenticeship requirements with respect to a qualified facility if the taxpayer has requested qualified apprentices from a registered apprenticeship program in accordance with the usual and customary business practices for registered apprenticeship programs in a particular industry and:
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Such request has been denied, provided that such denial is not the result of a refusal by the taxpayer or any contractors or subcontractors to comply with the established standards and requirements of the registered apprenticeship program, or
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The registered apprenticeship program fails to respond to such request within 5 business days after the date on which such registered apprenticeship program received such request.
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Taxpayers intending to rely on the good faith effort exception need to keep records reflecting those good faith efforts, such as documents showing the requests for apprentices and the response, if any, from the Registered Apprenticeship program.
Apprentice Pay Requirements
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Registered apprentices generally are required to be paid the percentage of the applicable journeyperson hourly rate required by their apprenticeship program in accordance with the apprentice’s level of progression in the program.
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Note that if an apprentice is dually registered with an apprenticeship program which is both state (CA) and federally approved and their hours worked on an IRA qualified project are counted towards their progression in the state (CA) apprenticeship program, the apprentice is likely entitled to be paid the higher of the federal wage rate or the state wage rate required under 8 C.C.R. section 208. The apprenticeship program should be consulted to determine the applicable wage rates at issue.