PROVIDENCE — How a worker is “classified” — either as an employee or an independent contractor — can make a big difference, according to a General Assembly commission.

It can help determine whether the worker will be covered under the state’s Temporary Disability Insurance (TDI) program, unemployment insurance programs, or workers’ compensation insurance.

It can help determine whether the employer will have to pay state income tax, federal income tax, Social Security and Medicare tax, and workers’ compensation insurance premiums.

In addition, employers who deliberately misclassify workers as independent contractors can win jobs by under-bidding employers who play by the rules.

A little-publicized commission has been studying these matters for months.

On Wednesday, the Special Joint Commission to Study the Underground Economy and Employee Misclassification approved its final report.

Among its findings:

•Six percent of the 500 employers audited by the Rhode Island Department of Labor and Training had misclassified at least one person as an independent contractor, according to figures for the year ended June 30, 2008.

•About 4 percent of the 7,121 workers that the agency audited had been misclassified as independent contractors. “Increased oversight and enforcement is likely to result in an even higher percentage of employment fraud,” the panel said.

•Applying figures based on calculations done by 10 states, including Connecticut and Massachusetts, the panel estimated that 6.1 percent of employees in Rhode Island were misclassified as independent contractors for the year ended June 30, 2008. Based on that estimate, the panel said that Rhode Island missed out on about $49.85 million in uncollected state income tax, unemployment insurance tax, TDI tax, and workers’ compensation premiums.

The commission said that employee misclassification leaves employees vulnerable, denies the state significant funds, and harms legitimate business owners.

At a meeting at the State House on Wednesday, union leader George H. Nee, secretary-treasurer of the Rhode Island AFL-CIO, told the commission that employee misclassification is “rampant” in certain industries, including construction and landscaping, but also shows up in other industries, too.

The commission voted to recommend legislation that would, among other things, adopt a uniform definition of the term “independent contractor” for purposes of workers’ compensation and unemployment insurance.

(The state Division of Taxation will continue to use a multipart test developed by the Internal Revenue Service, Rhode Island Tax Administrator David M. Sullivan said.)

Tightening the rules regarding the classification of workers will benefit employees, as well as employers “who play by the rules,” Nee said in an interview after the meeting. Nee called the commission’s actions “a great step forward. It’s long overdue.”

The commission is working to “close some of the loopholes” in existing state law, said state Rep. Arthur J. Corvese, D-North Providence, the panel’s co-chairman.

He said that the panel’s final report should be available soon, and that proposed legislation should soon be introduced in the current session of the General Assembly.

Of the panel’s actions on Wednesday, Corvese said, “I think it was a good first step to stop some of the abuses in the system.”

The U.S. Treasury Inspector General for Tax Administration said in a report earlier this year that the misclassification of employees as independent contractors “is a nationwide issue affecting millions of workers that continues to grow and contribute to the tax gap,” which is the difference between the amount of tax that should be paid and the amount that is actually paid.

“The limited data available indicates that the worker classification issue is growing significantly,” the Treasury report said. “When an employee is misclassified, tax revenues are not reported or paid and the burden of uncollected taxes shifts to other taxpayers,” the Treasury said.

The Rhode Island commission was formed last year through legislation sponsored by Senate Majority Leader Daniel P. Connors, D-Cumberland, and Corvese.

ndowning@projo.com