Definitely the reset conversation, and then head to rematch (though painful) if needed.
Our first au pair, though addicted to her cell phone after hours to connect with BF and family at home, did not use her phone during work hours unless it was communicate with us. Second au pair, super-Instagrammer, however, she only uses her cell phone to text us and/or takes photos of the kids during work hours. Headed into 3rd AP, and it's one of my top interview questions. Someone that is on the phone constantly is not going to be engaged caregiver.
Being strict about is necessary. We have always taken the safety angle - with younger kids and it only takes a moment for them to do something to hurt themselves (or the others). Sometimes they have bad scrapes and falls even when you're right there watching them! Distraction is not acceptable and let her know that you'll have to go into rematch if she cannot abide by this line. Also, understand this is your first AP, so some of these convos are harder to have, but definitely draw the line (again, and over and over) as needed. I personally would head into rematch if I didn't see the AP taking this seriously. APs can make it through the day without using their phones and should obey house rules. And yes, totally ok to tell her not to wear an Apple watch during the shift. For example, we ask APs not wear perfumes and scents during on-duty time. (I'm sure AP troll will come back to call me controlling :lol
Remember, it's your house, your rules. Good luck and I hope it gets better!