Yeah, based on reading this thread I'd probably go for #2. Try and negotiate a compromise.
Initially I was under the impression that she was a contractor as she was working from home. In which case whatever time she was putting into the project should have been paid for so long as she was innocent of any screwup.
Someone else pretty well summed it up though, if shes working from home get paid for whatever troubleshooting time she went through, presuming the problem is the company's.
Unless this is a really good job, we're talking about minimal money and she feels like taking this one on the chin for the greater good.
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