Smart workwear systems with embedded inertial measurement unit sensors are developed for convenient ergonomic risk assessment of occupational activities. However, its measurement accuracy can be affected by potential cloth artifacts, which have not been previously assessed. Therefore, it is crucial to evaluate the accuracy of sensors placed in the workwear systems for research and practice purposes. This study aimed to compare in-cloth and on-skin sensors for assessing upper arms and trunk postures and movements, with the on-skin sensors as the reference. Five simulated work tasks were performed by twelve subjects (seven women and five men). Results showed that the mean (±SD) absolute cloth-skin sensor differences of the median dominant arm elevation angle ranged between 1.2° (±1.4) and 4.1° (±3.5). For the median trunk flexion angle, the mean absolute cloth-skin sensor differences ranged between 2.7° (±1.7) and 3.7° (±3.9). Larger errors were observed for the 90th and 95th percentiles of inclination angles and inclination velocities. The performance depended on the tasks and was affected by individual factors, such as the fit of the clothes. Potential error compensation algorithms need to be investigated in future work. In conclusion, in-cloth sensors showed acceptable accuracy for measuring upper arm and trunk postures and movements on a group level. Considering the balance of accuracy, comfort, and usability, such a system can potentially be a practical tool for ergonomic assessment for researchers and practitioners.