"It’s genuinely the case that upon returning home from her W-2 job, she takes care of the company’s tasks, even though the nature of the W-2 work is different from this work. ( like a Uber diver can get 1099 but could have a W-2 though)"

I think you're still missing the point of how Worker Misclassification is determined.

Let's use that as an example:

Your neighbor drives for an appliance shop as a delivery and installer. He uses their trucks, drives their route, and has to meet their schedule for arrivals/deliveries, pickups. That's three tests: under whose control, using whose supplies, equipment and at risk issues for insurance on that equipment, traffic, vehicles, what is in the truck (in the case of a truck fire or rollover, for example) and his own medical and worker comp if that truck were involved in a traffic accident. These are ways to understand the regulations that prove this person is not an independent contractor, but an employee in this scenario.

On the weekend, this same person hauls junk and cleans out garages as a side gig, using his own 3/4 ton pickup. This is independent contractor work. He can decide to work or not to work that Saturday, this is his own truck, he carries the insurance, if he damages something he is moving for you, his is the one carrying the risk of that event to make you whole.

See how it doesn't matter if that is the same work or not? When looking at it for that evaluation, notice how he can drive on the weekends for lots of people? But during the weekdays his job is as a regular employee. Even if he also drove evenings for a parcel delivery, such as the local beverage distributor has him driving a route a few nights a week, that's still a W2 job if it's in their truck, delivering to their customers, on their schedule, and it's not a product he bought wholesale to sell as his own business.

The question of "does she do this work for others" is like Your work. You have lots of clients, and if you supply and use your own resources, your own internet, your own software, etc, you are "in business as an independent consultant."

You might also have a client with a place where you go in month end to do their reconciliations and reporting, using their computers, their software, their workspace, their copiers. That would be a W2 job for you or you are misclassified. For it to be Contract Customer instead of Employee, you should be doing all that work at your own schedule, using your own software, your own equipment, your own risks, and incurring your own costs.

In other words, every relationship stands alone. If she is not in the business of what she is doing for his S Corp, and not doing it for other clients, and not personally incurring the risks and costs of this work, it's not independent of the S Corp and she should stay on W2. Of course it's messy when it's a Home Office. Are they writing off the home office on the taxes? On the 1120S or 1040/Sched C?

Her health insurance was only an example of the benefit coverage afforded employees, and the group policy under an S Corp (if the employer offers this) is nearly always better, and cheaper, than the Sole Proprietor can find on the market.

"She can contribute on retirement account as self-employed too."

Not under the S Corp.

"Worker Comps is a decoration in our country"

Oh, nonsense. Maybe you're just lucky enough to not see a co-worker get burned on the job, or get in a wreck while driving a company car to a meeting or on an errand, or lose limbs while working on the railroad.

No, you don't qualify for FUTA as a sole proprietor. Again, these were simply a listing of considerations that will affect her.

Everything about this smells wrong, across the internet. But no one here is an enforcer.