I operate a flight school and I employ flight instructors who I pay only for the hours that they bill my customers. For example, a flight instructor may actually be at work from 8 to 5 but only bills 6.5 hours of billable time to customers. Therefore, he/she is paid for 6.5 hours of work.
Question: Using this payment structure, am I allowed to place scheduling demands on my flight instructors? For example, can I demand that they are available to work from 7 to 7 five days per week? If not, how should I set up the schedule/payment structure? maybe a small salary or something?

Thanks!

If they are employees, yes you can require they "work" whatever hours you say they need to work. But you must pay them at least minimum wage for the time. However, as long as their weekly gross pay divided by their hours for the week exceeds minimum wage, AND you pay them overtime when those hours worked exceed 40 in a workweek, you would be in compliance.
http://www.dol.gov/dol/allcfr/ESA/Title_29/Part_778/29CFR778.112.htm

You can demand whatever you want and comply with the law, so long as the employees are paid at least minimum wage for all hours worked.

Your employees may not be happy with the arrangement. Only you can decide if it is good for the business or not.

I would also suggest that you have the compensation policy/agreement in writing as suggested here:
http://www.twc.state.tx.us/news/efte/pay_agreements.html
and to add the following statements:
(1) "Company management recognizes that the [employee/job title] will be working outside of Session time doing data input, preparation and finalizing of programs and it is intended that the pay schedule above accounts for time that includes these activities. "

(2) "Company reserves the right to change this incentive pay plan at any time, provided such changes are permitted by applicable law. Before we make any significant change in our pay practices, Company will provide two week’s notice in writing of such a change.

This incentive pay plan is not a contract guaranteeing employment for any specific duration. This incentive pay plan does not affect the employment status of the employee being “at-will”, meaning that the employment relationship may be terminated at any time and for any non-discriminatory reason by either party."

Thanks so much for the responses. They have been very helpful.

Question: Can hourly employees be considered "on call" without paying them until they render a service at my business. In other words, can I demand that an hourly employee be available for work (not necessarily in the office but able to be there with reasonable notice) from 8 to 5 but only pay them for the hours that they actually work with my customers in the office?

Thanks!

That is a "yes, but". The actual regulation is below. The catch is whether or not the employee is able to make use of his/her time off, or if the employer places sufficent restrictions that the time becomes treated as hours worked. This is a very old regulation (1940s) and there are a lot of related court decisions. The courts in their wisdom have not decided to use a bright line test, but instead look at all factors and weigh the degree that the employee's activity is constrained.

http://www.dol.gov/dol/allcfr/ESA/Title_29/Part_785/29CFR785.17.htm

An employee who is required to remain on call on the employer's premises or so close thereto that he cannot use the time effectively for his own purposes is working while ``on call''. An employee who is not required to remain on the employer's premises but is merely required to leave word at his home or with company officials where he may be reached is not working while on call. ...