Direct Pay: Building Jobs & Sustainable Public Energy in Local Communities

A Step-by-Step Guide to Worker Protection Requirements


Introduction

Thanks to the Inflation Reduction Act (IRA), tax-exempt entities like towns, schools, houses of worship, and more can get tax-free, cash payments (“Direct Pay”) from the government for sustainable energy projects. To ensure workers are paid fairly and to build a clean energy workforce, the IRA included labor-related requirements for projects with an output greater than 1 Megawatt, such as a wind turbine or solar farm. Once your entity is ready to begin a Direct Pay clean energy project, this guide will help you adhere to the law’s requirements while protecting workers and creating high-quality jobs.

Step 1: Partner With a Union

Step 2: Determine the Prevailing Wage

Step 3: Hire Registered Apprentices

Step 4: Establish a Community Benefit Agreement with Local Stakeholders

Why? While not required by the law, eligible entities should partner with labor unions on Direct Pay projects to promote workers' rights and keep the project running on-time and on-budget. One study found union workers are 14 percent more productive, help reduce project costs and lower turnover, and construction schedules slip less on projects using union labor. Unions can also help eligible entities find contractors and subcontractors for project management, comply with prevailing wage requirements, hire registered apprentices, and more.

How? Below is a list of unions that are most likely to be relevant to Direct Pay projects, listed by types of technology your project might use. Also below are directories to find your local union, which entities should consult before undertaking a Direct Pay project:

  • Once you’ve partnered with a union and secured workers for your project, you must determine the prevailing wage you’ll need to pay those workers. The prevailing wage includes workers’ hourly wages and fringe benefits, like health insurance. For more information on prevailing wages and the IRA’s requirements, see FAQS on How to Protect Direct Pay Project Workers.

  • Important note: There is no one prevailing wage applicable to all workers: it varies by project type, location, and type of worker. For example, if your project employs electricians and insulators, you must determine the prevailing wage for electricians and also determine the prevailing wage for insulators.

  • To calculate the prevailing wage you must pay your project’s workers, visit https://sam.gov/content/wage-determinations. For help navigating this website, see the figures and explanations to the right. 

  • Click “Public Building or Works” (Figure 1)

  • On the next screen under “Filter By,” select your State, County/Independent City, and DBA Construction Type. (Figure 2)

    • If the project spans more than one locality (for example, if you are building a solar farm that spans two counties), you must pay the prevailing wage for the locality the worker will do most of their work in. 

    • There are four types of construction. Most Direct Pay projects will fall under “Building” or “Heavy”:

    • Building: construction, alteration, or repair of a sheltered enclosure with walk-in access for the purpose of housing people, machinery, equipment, or supplies. This can include installing solar panels on a roof, installing new windows, or other building-related greening projects.

    • Residential: construction, alteration, or repair of single-family houses or apartment buildings of no more than four stories.

    • Highway: construction, alteration, or repair of roads, streets, highways, runways, taxiways, alleys, trails, paths, parking areas, and other similar projects.

    • Heavy: projects that are not properly classified as either “building,” “residential,” or “highway.” This can include wind turbines, solar facilities, utility projects, and more. 

  • Click on the “WD number” (the blue hyperlink) (Figure 3)

  • Prevailing wages are continually updated. The next page will show you when the wage determination(WD) relevant to your workers was last revised (Figure 4).

  • Scroll down on the page to the “Document” section and click download (Figure 5). The prevailing wage determination for your project’s workers is the total of the base rate plus the fringe benefits. For example, if the base rate is $35 per hour and the fringe benefit is $15 per hour, then the total prevailing wage for the worker would be $50 per hour.

  • If the search parameters do not yield any result or you are unable to locate an applicable wage determination, please send a request for assistance to IRAprevailingwage@dol.gov.

  • You must keep permanent records showing workers were paid the prevailing wage while working on your project. This must include a list of all workers on the project, their worker classification, how many hours they worked in each classification, and what prevailing wage rates they were paid for that work, including bona fide fringe benefits contributions or costs.

  • Once you’ve completed steps 1 - 2, now your next step is to hire registered apprentices. To learn what makes registered apprentices distinct and their benefits for your project and community, see FAQS on How to Protect Direct Pay Project Workers. 

  • How? As we said in Step 1, partnering with a local labor union is critical to the job's success. You could partner with a local labor union to find Registered Apprenticeship Programs and identify apprentices for your project. Labor unions and signatory contractors have their own resources for identifying available qualifying apprentices. For example, the Electrical Training Alliance, which provides training for electrical registered apprentices, has its list of training centers at https://www.electricaltrainingalliance.org/locateaTrainingCenter. Entities can also use the Department of Labor’s Partner Finder tool to identify and partner with apprenticeship agencies and programs.

  • What are the requirements? It's important to understand the registered apprenticeship requirements under the Direct Pay program. Those include: 

    • Apprenticeship Labor Hour Requirement: If a project begins in 2023, qualified apprentices must complete 12.5 percent of total labor hours on a supported construction site. After 2023 and beyond, that requirement increases to 15 percent. 

    • Apprenticeship Participation Requirement: If four or more workers are employed on a project, you must employ one or more apprentices.

    • Record Keeping Requirement: You must keep records of work performed by apprentices to access the full Direct Pay tax credit available. Records must include:

      • The ratio of workers to apprentices each day an apprentice or apprentices are working on the project; and

      • Proof that the apprenticeship labor hour requirement (above) was met. 

Once you’ve identified the workers and registered apprentices you’ll need to complete your project, while not required, you should establish an agreement to ensure your project benefits and protects the workers and your community as much as possible. 

  • What is a Community Benefit Agreement? Community Benefit Agreements (CBAs) or, sometimes, Community Workforce Agreements (CWAs) are legally-binding contracts that workers and employers agree to before workers are formally hired. These contracts may cover worker compensation, job safety standards, hiring targets, mechanisms to resolve disputes, and more. 

  • Why Establish a Community Benefit Agreement? CBAs support economic and racial equity while helping employers avoid labor-related disruptions and delays. While not required under the IRA, these agreements can empower historically marginalized communities by creating job opportunities and career paths, promoting fair wages, and directing project benefits towards underserved neighborhoods. For more information, see FAQS on How to Protect Direct Pay Project Workers. 

Below are some steps entities should take to establish a CBA:

  • Identify Project Scope and Goals

    Define the Direct Pay project's scope, objectives, and potential impacts on the local community. Understand the critical needs and concerns of the community that may be affected by the project. Do they want to ensure dirty energy is taken out of a specific area? Do they want to ensure specific community meetings and local hire priorities? 

    Stakeholder Identification

    Identify and involve key stakeholders, including community organizations, local residents, businesses, non-profits, and government agencies. Establish a diverse and representative stakeholder group that can effectively advocate for community interests.

    Community Engagement

    Ensure community engagement by gathering input from stakeholders with diverse methods, including online, in-person, or over the phone. Conduct public meetings, workshops, surveys, and other forms of engagement to understand the community's desires, needs, and concerns regarding the project. Remember to provide childcare and compensate community members for their time.

    Assessment of Community Needs

    Based on the feedback received from the community, assess their specific needs and expectations of the project, like job opportunities for underserved communities, environmental protections, infrastructure improvements, and more.

    Research and Analysis

    Research successful CBAs from similar projects to gain insights into best practices and potential benefits that could be included in your CBA. For example, please read the Department of Energy's Community Benefit Agreement (CBA) Toolkit and How Project Labor Agreements and Community Workforce Agreements Are Good for the Biden Administration's Investment Agenda from the Center for American Progress.

    Negotiation and Agreement

    Initiate negotiations between the project developers, government agencies, and the community stakeholders. For example, identify common ground and areas of compromise to create a mutually acceptable CBA.

    Drafting the CBA

    Collaboratively draft the CBA document that outlines the specific commitments, benefits, and obligations of all parties involved. This document should be legally binding and cover local and targeted hiring, job training, environmental protections, community services, and more.

    Legal Review

    Have legal experts experienced in contract law and community development review the CBA to ensure its legality, enforceability, and alignment with federal and local laws.

    Approval Process

    Obtain approval from all relevant stakeholders, including local government agencies, project developers, and community organizations. Depending on the project's scale and location, this could involve local council approvals or other governing bodies.

    Implementation and Monitoring

    Once the CBA is finalized and approved, uphold the commitments outlined in the agreement throughout the project's lifecycle. Establish mechanisms for monitoring, reporting, and addressing any deviations from the agreed-upon terms.

    Community Oversight

    Create a mechanism for ongoing community oversight to ensure the project developers and government agencies fulfill their commitments. For example, you could hold regular meetings, write progress reports, and produce dispute-resolution mechanisms.

    Communication and Transparency

    Maintain open communication among all parties involved and regularly update the community on the project's progress and the CBA's implementation. Transparency is vital to maintaining trust.

    Adaptation and Evaluation

    Periodically evaluate the CBA's effectiveness and impact on the community. Adjust as needed to address changing circumstances, emerging needs, and lessons learned.

    Tout Your Progress

    Share your wins and lessons learned in implementing your project design with high-road labor standards.


The Congressional Progressive Caucus Center thanks the International Brotherhood of Electrical Workers (IBEW) for their comments and insights.