Performance appraisal system is an important human resource management tool used to evaluate the performance, efficiency and potential of employees in an organization. In Micro, Small and Medium Enterprises (MSMEs), where resources are limited and each employee plays a crucial role in productivity, an effective performance appraisal system helps both the organization and the employees in achieving better outcomes. It provides a structured process to assess individual contributions, identify strengths and weaknesses, and plan future development. For the organization, one of the major benefits of a performance appraisal system is improved productivity. By regularly evaluating employee performance, management can identify high performers and underperformers. This enables the organization to take corrective measures such as training, job redesign, or motivation to improve overall productivity. It also helps in aligning individual performance with organizational goals, ensuring that employees work in a direction that supports the growth of the enterprise. Another important benefit is better decision making related to human resource management. Performance appraisal provides reliable data that assists managers in making decisions about promotions, transfers, salary increments, incentives and rewards. In MSMEs, where employee numbers are relatively