'저 안 바빠요' means 'I'm not busy.' In this case, you can also use '바쁘지 않아' but '저 안 바빠요' is much more natural and polite. '시간 있어요?' is 'you are free?' Your sentence has nothing to be corrected. It is already perfect!

Both of two are correct. Literally speaking "시간 있어요" means "Do you have time?", but you can also say "시간 있어요" in a sense of "you're free?" ^^