Is it ok to leave the DNS env vars since they’re for DNSMasq
I wouldn't leave DNS1 ENV set to 127.0.0.1, it should have an external sever. It's circular pointing dnsmasq at localhost (it's self).
is there a way in pihole to exclude specific IP addresses from having any content blocked?
There are a couple ways to approach that, my first suggestion is just have her disable Pi-hole by programming her DNS static to an external server is probably the simplest. If you want her to have Pi-hole in the evening when not working then use the web interface disable during her work hours. You could also try whitelsting her work's domain(s) with a wildcard or regex.