Fe-Mn-Si-Cr-Ni composite powders are utilized to form a functional shape memory alloy cladding layer (SMACL) using a laser cladding method. The microstructure, microhardness, and phase composition of the SMACL are measured, and the extent of deformation of the laser cladding samples is determined. The SMACL is composed of planar, cellular, and dendritic crystals, equiaxed grains, and oxides with increasing distance from the substrate surface. The SMACL is further composed of \varepsilon -martensite and \gamma -austenite phases, while the tempered SMACL consists mainly of \gamma -austenite. Extensive deformation occurs in AISI 304 stainless steel laser cladding samples. By contrast, limited deformation is observed in the SMACL samples.