Twenty-seven union members at the social services organisation were suspended yesterday morning by director Nicola Taylor.
The workers - in Dunedin, Alexandra and Balclutha - were told to leave their offices.
Within several hours they had agreed to stop industrial action.
PSA national secretary Richard Wagstaff said yesterday afternoon the staff would return because they were concerned vulnerable families would be denied services just before Christmas.
Mr Wagstaff criticised the suspension, calling it ''aggressive and reckless''.
Union members had been conducting low-level industrial action since December 8 over the pay dispute.
Their action had included not washing company cars and working to rule.
The union wanted pay increases to match consumer price index adjustments and was seeking ''urgent facilitation'' to find a solution.
Mrs Taylor said she was pleased the staff had withdrawn their industrial action and would return to work today.
''That's great, a good outcome.''
She would work with mediators in urgent facilitation, she said.
Earlier, union delegate Fiona McLean, a social worker for the company, said the suspensions were a ''real blow''.
The staff had expected a positive outcome to be reached before Christmas, she said.
''This is not how to treat people, especially at Christmas time.''
Another union delegate, Pania Tulia, who is also a social worker, said she arrived at work at the Bath St, Dunedin, office at 8am yesterday and had confirmed her visits to three vulnerable families.
About 8.20am, Mrs Taylor handed her a letter detailing her suspension without pay.
''The job we do is stressful, because we mentally give ourselves to our families, so to come to work and be told you've been suspended with no pay and no annual leave with Christmas coming up is stressful,'' Ms Tulia said.
More than 30 protesters with banners gathered outside the Anglican Family Care office in Dunedin yesterday.
During the protest, Mrs Taylor walked through the group.
Public Service Association Dunedin organiser Jo Taylor described her actions as intimidating.
Mrs Taylor said she walked through the protesters because she had a noon meeting and needed her car.
AFC's decision to suspend the workers prompted a huge response on the Public Service Association's social media page.
By last night, many people had left messages of support about the incident.
Anglican Family Care
• Child and family support service.
• 46 staff based in Dunedin, Alexandra and Balclutha.
• Services include food bank, welfare, budgeting and counselling.
• Nearly 80% of income is from government contracts.
• $2.5 million annual turnover.
• Donations entirely fund the food bank and welfare services.
