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Federal officials recently outlined prevailing wage and apprenticeship requirements that projects need to adopt if they want to take advantage of the enhanced tax credits and deductions created by the Inflation Reduction Act (IRA). The Internal Revenue Service published Notice 2022-61 on November 30 which, along with subsequent guidance from the United States Department of Labor, Wage and Hour Division, makes clear that businesses—even those who are not federal contractors—must implement the prevailing wage requirements of the Davis Bacon Act (DBA), as well as the DBA’s apprenticeship requirements, to obtain the maximum in tax benefits. What do you as an employer need to know about these requirements in order to put yourself in the best position to benefit?

What is the Inflation Reduction Act?

The IRA was signed into law by President Biden on August 16, 2022. In an effort to boost investment in clean energy, the IRA modifies and enlarges certain tax credits and deductions for projects to build and install renewable energy and energy-efficiency “green” technology. Such projects include those for renewable energy production, carbon oxide sequestration, zero-emission nuclear power, investments in solar energy, and energy-efficient commercial buildings.  However, to be eligible for the tax credits, and to meet the IRA’s secondary goal of creating good-paying jobs, laborers and mechanics must be paid a guaranteed wage of at least the applicable prevailing wage and fringe benefits for all hours worked performing construction, alteration, or repair, on the site of a qualified facility.

The prevailing wage and apprenticeship provisions apply to the Alternative Fuel Refueling Property Credit, Production Tax Credit, Credit for the Carbon Oxide Sequestration, Credit for the Production of Clean Hydrogen, Clean Fuel Production Credit, Investment Tax Credit, Advanced Energy Project Credit, and Energy Efficient Commercial Buildings Deduction. Only the prevailing wage provisions apply to the New Energy Efficient Home Credit and Zero-Emission Nuclear Power Production Credit.

What are the Prevailing Wage Requirements?

Federal contractors are all too familiar with the prevailing wage requirements under the federal DBA. The DBA requires contractors and subcontractors to pay the prevailing wage rate and fringe benefits to all employees who are working on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair of public buildings or public works. 

For purposes of the IRA, any taxpayer seeking to realize the tax credits must ensure that laborers and mechanics working on clean energy construction projects are paid wages and fringe benefits consistent with the DBA.

For each locality and type of construction project, the federal government has set forth a prevailing wage rate, which is the minimum rate of pay for a specific job classification. The rate of pay may also be subject to enhancements for overtime, work performed on Saturdays and/or Sundays, and work performed on holidays. 

Additionally, there are certain fringe benefits that are required to be paid to employees. Fringe benefits are additional cash compensation, set at an hourly rate, that employers must provide to cover costs such as health insurance benefits. Employers can provide fringe benefits through a combination of cash wages and contributions to employer-provided bona fide fringe benefit plans.

 What are the Apprenticeship Requirements?

The IRA is unique in that it sets forth certain requirements for a taxpayer to be eligible for tax credits, including the employment of apprentices on clean energy construction projects. These requirements encourage individuals to learn trades by enhancing training for certain well-paying construction jobs. While the DBA does not require federal contractors to do the same, it permits the payment of reduced prevailing wage and fringe benefit rates for apprentices. 

An apprentice is an individual employed and individually registered in a bona fide apprenticeship program. To be eligible for the increased tax credits or deductions, contractors must employ a minimum number of apprentices on the job and a certain percentage of the total labor hours of the construction, alteration, or repair work with respect to the facility must be performed by qualified apprentices. 

Specifically, any taxpayer, contractor, or subcontractor who employs four or more people to perform construction, alteration, or repair work with respect to the construction of a qualified facility must employ one or more qualified apprentices to perform the work. Employers will also have to comply with any journeyman to apprentice ratios set by state or local law. The apprentices must be affiliated with an apprenticeship program that is registered with the Department of Labor’s Employment and Training Administration or similar state agency.

With respect to the percentage of total labor hours that must be performed by qualified apprentices, the percentage depends on when the work began. For the construction of a qualified facility that begins before January 1, 2023, 10% of the total labor hours must be performed by qualified apprentices. For construction that begins after December 31, 2022 and before January 1, 2024, 12% of the total labor hours must be performed by qualified apprentices. For construction that begins after December 31, 2023, 15% of the total labor hours must be performed by qualified apprentices.

 How Do We Determine When the Work Begins?

There are two methods that can be used to determine when the construction work begins: the Physical Work Test and the Five Percent Safe Harbor. 

  • Under the Physical Work Test, construction of a qualified facility is considered to begin when physical work of a significant nature begins, provided there is a continuous program of construction. This can include preliminary activities, such as planning or designing, securing financing, exploring, researching, obtaining permits, licensing, conducting surveys, environmental and engineering studies, or clearing a site and may include on-site or off-site work.
  • Under the Five Percent Safe Harbor, construction is considered to begin if the taxpayer pays or incurs 5% or more of the total cost of the facility and, thereafter, makes continuous efforts to advance towards completion of the facility.

 What are the Recordkeeping Requirements?

Similar to the DBA, recordkeeping is essential to ensuring compliance with the IRA. Any person subject to income tax is required to keep permanent books of accounts or records, including inventories, as are sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown in any return of such tax. Records must be maintained so long as the contents may become material in the administration of any internal revenue law.

What Should Employers Do Now?

Employers, including contractors and subcontractors, involved in the construction, alteration, or repair of a clean energy facility must ensure compliance with the IRA’s wage and hour requirements in order to take advantage of the increased tax credits and deductions. This means ensuring workers are paid the applicable prevailing wage rates, apprentices are hired to perform some of the work if there are four or more workers on the project, and that apprentices are performing the minimum percentage of work required.

Employers who expect to be awarded contracts for covered projects should look to see what registered apprenticeship programs exist in their area, or consider evaluating whether they can set up their own registered apprenticeship program.


Fisher Phillips will continue to monitor this area and provide updates as needed. Please ensure you are subscribed to Fisher Phillips’ Insight system to gather the most up-to-date information. If you have questions, please contact your Fisher Phillips attorney, the authors of this Insight, or any attorney in our Wage and Hour Practice Group.

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Tribal nations face unique opportunities and challenges in regulating their employment relationships. In addition to maintaining government workforces like their counterparts in the federal and state systems, they employ countless Native and non-Natives in their commercial endeavors and support their members in employing many more. Indeed, tribal public and commercial entities are the largest employers in several regions throughout the country. At the same time, tribes know the constant struggles to apply their laws to non-Natives and avoid being dragged into federal court. By drafting labor and employment codes with care, tribes can support economic development, protect their members, and expand their sovereign right to regulate reservation affairs without federal intrusion. The follow seven tips can help them do so:

  1. Consider the special needs of significant tribal employers. While tribal economies are diverse, they often include businesses that warrant special consideration because of their size or nature. For example, some tribes have set special requirements for union observers at their gaming facilities. Or tribes may wish to adopt different overtime regulations for fish and game workers, as many states have. Tribes often have closer relations to their commercial employers than other governments and can draw on the expertise of those employers.
  2. Providing community-specific employee protections. Tribes can provide employees who work for their enterprises or on their reservations protections beyond those accorded by state or federal law. For example, tribes can enforce higher minimum wages to further their members’ economic welfare or make their enterprises particularly attractive to applicants. They can prohibit discrimination on the basis of categories not recognized by other systems, such as marital status, political affiliation, or tribal membership. And they can provide additional bases for leave, such as tribal cultural events.
  3. Provide a tribal forum. One of the best ways to prevent employees from dragging tribes or tribal entities into federal court or federal administrative proceedings is to provide such fora within the tribal system. Tribes have done so by creating causes of action that can be heard only in tribal court, creating tribal equivalents to the Equal Employment Opportunity Commission, enacting special courts for employment disputes, or mandating large employers maintain informal dispute resolution options.
  4. Affirm tribal jurisdiction through legislative findings. Tribes have jurisdiction to apply their law to non-tribal members’ disputes that threaten tribal welfare or that arise from the non-members’ consensual relations with members or the tribe. It is important in drafting tribal labor and employment codes to address these bases of jurisdiction. An exemplar legislative provision might find that employment relations directly affect tribal welfare because such relations affect the tribe’s economic development and the distribution of its resources. Such a provision might also affirm that when a non-member works for a tribal entity, or a non-tribal company employs a tribal member, they have entered a consensual relation subject to tribal jurisdiction.
  5. Affirm that employment regulation is an intramural affair. Generally applicable federal employment laws such as the Fair Labor Standards Act do not apply to tribes if they interfere with a tribe’s intramural affairs. Courts have held that commercial employment regulations are generally not an intramural affair but may become so if already regulated by tribal law.
  6. Affirm treaty rights to preclude federal law. Similarly, federal employment laws will not apply to tribal employers if precluded by a treaty right. Many treaties provide that tribes will have exclusive use of their reservation and the right to exclude others, including certain federal officers. Courts have held, for example, that this may allow tribes to refuse to permit investigators from the Occupational Safety and Health Administration on to the reservation. Tribes can achieve this result by carefully analyzing such treaty provisions and interpreting them in their labor and employment codes.
  7. Right to Work Laws. One of the most dynamic issues in tribal labor law is whether the National Labor Relations Act applies to tribes. The federal appeals courts are split on the issue. In circuits where that Act has been held to apply, tribes can still enact “Right to Work” laws to ban Union Security Agreements that would require workers to join a labor union in order to keep their jobs.


In enacting such laws to bolster tribal economies and sovereignty, tribes should consider consulting counsel well-versed in both labor and employment law and the concerns of Indian County. Fisher Phillips lawyers have helped draft tribal labor and employment laws and are available to assist. If you have any questions, contact your Fisher Phillips lawyer or the author of this Insight. We will continue to provide guidance in this field when warranted so make sure to sign up for our Insight system to ensure you receive the latest news in your inbox.

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